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Published: Thursday, 6/13/2013 - Updated: 1 year ago

BUSINESS UPS AND DOWNS

Building supply price jumps hamper home construction

BY JON CHAVEZ
BLADE BUSINESS WRITER
Construction worker Miguel Fonseca carries lumber as he works on building a house in Chula Vista, Calif. Framing lumber now costs 67 percent more than it did at its low price point in 2009. Construction worker Miguel Fonseca carries lumber as he works on building a house in Chula Vista, Calif. Framing lumber now costs 67 percent more than it did at its low price point in 2009.
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Just as interest in building new single family homes appears to be rekindling in the Toledo area, another hurdle is making potential new home buyers think twice.

Prices of key building materials — framing lumber, oriented strand board, and gypsum drywall — skyrocketed this spring, sometimes adding several thousand dollars to the price of a home compared with a year ago.

“I probably shouldn’t be saying this, but I ended up eating some of the lumber prices on a deal this spring because lumber prices went up so much,” said local builder Jim Moline, of James E. Moline Builders Inc.

“If you get a contract, it’s hard to go back to somebody later and say, ‘I need $3,000 more because the lumber prices went up,’ ” Mr. Moline said.

Since hitting price troughs in 2009, framing lumber has climbed to 67 percent above its low point; gypsum drywall has increased 40 percent, and strand board, which is more commonly called OSB and is an engineered wood particle board, has gone up about 151 percent.

“OSB has more than doubled. It use to be about seven or eight bucks a sheet. Now it’s $16 or $20,” Mr. Moline said.

But help may be coming soon.

In the last month, prices for lumber and OSB have started to retreat, and lower pricing could hit Toledo and the Midwest in the next month or two, experts said.

“It’s really kind of a good news and bad news story,” said Robert Denk, senior economist for the National Association of Home Builders in Washington.

Forklift operator Richard Gascon fills an order of cedar boards at Jones Wholesale Lumber Co. in Lynwood, Calif. Experts say skyrocketing building supply costs may be retreating soon. Forklift operator Richard Gascon fills an order of cedar boards at Jones Wholesale Lumber Co. in Lynwood, Calif. Experts say skyrocketing building supply costs may be retreating soon.
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“Prices have gone up. That’s true and it’s the bad news. But in a new development, those prices have been unraveling in the last six or eight weeks and it’s finally being seen with suppliers and in the distribution chain,” Mr. Denk said.

According to Random Lengths, a publication that tracks the wood and related building materials industry, framing lumber, which peaked at $437 per thousand board feet in April, decreased to $372 in May.

Structural panel composite material, which is plywood and OSB, peaked in March at $513 per thousand square feet. In May it had fallen to $456.

However, framing lumber is still 10 percent higher than it was a year ago while panel composite costs 27 percent more. Compared with two years ago, framing lumber is 44 percent more expensive, and panel composite is 64 percent more expensive.

Compared with last fall, when prices began to take off, “both of them are coming down rapidly now,” Mr. Denk said.

Why prices began skyrocketing last fall is an interesting tale. Popular wisdom said it was related to heavy demand fueled by new construction after East Coast hurricanes and high winds. But Mr. Denk said data do not confirm that.

What has been confirmed, however, is that when the recent recession occurred, many home builders left the industry as demand for new homes dwindled.

As a consequence, many building materials producers shut down plants and eliminated capacity, and plant workers left the industry.

“Just like we lost a lot of builders, we lost a lot of building materials capacity. Many mothballed production sites,” Mr. Denk said.

While demand for single family home construction has risen, that has yet to prompt building materials manufacturers to reopen plants or expand capacity, which has caused a strain on supply.

“Producers have been slow to un-mothball production because it’s expensive to un-mothball a plant and they’re waiting to see if the housing recovery really has traction,” Mr. Denk said. “So that’s what’s been driving up the prices.”

Shawn Church, editor of Random Lengths, said that while lumber and OSB prices had been very high, “it’s definitely made a turn. It had hit some historically high levels in April, but in May it started to come down and it’s been soft ever since.”

Despite the fact that production capacity of those products isn’t better, Mr. Church said inclement weather in the Midwest and delaying of home building in some parts has allowed supplies to catch up a little with demand.

Everyone wanted to bail out and was worred about the downside risk of high prices, Mr. Church said. “That actually helped out,” he said.

And now it appears that manufacturers are deciding to increase production, he added.

“Right now it seems as though there will be plenty of supply to meet the demand,” he said. “How long it lasts, who knows?”

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.



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