LumbarCharts_Plywood

Lumber Costs on the Rise

“A do-it-yourself home-improvement and construction boom has sent the price of lumber skyrocketing, as sawmills and strand-board manufacturers, including in Minnesota, scramble to keep up with surging demand.” – Star Tribune

The economy is slowly recovering and with that bounce back we are seeing lumber supply demand out of balance and prices spike. Mark Scholl of Lampart Lumbar provides us some insight on what they have been seeing and how it currently affects construction.

Sharp price increase remained the rule in lumber and panel markets. Escalating prices had yet to chase off many buyers, who continued to scramble for coverage amid persistently tight supplies. Reports circulated of some buyers pulling back, but plenty others were still in the market. A strong July U.S. housing starts report helped sustain momentum.

SPF – Strong demand and restricted supplies kept intense upward pressure on random dimension and stud prices at Western SPF mills. Prices of 2×4 studs increased $40 over last week’s reported levels.

OSB – Buoyed by a robust July housing starts report, OSB prices continued to march higher, posting $15 increase early in the week. Demand easily outpaced supplies and kept buyers in the market, despite record levels. A number of producers remained off the market, with order files extended into late September and early October.

PLY – Long lead times, strong recent upward price appreciation, and limited availability kept a lid on early trading. Demand throughout the distribution pipeline remained steady to strong. Buyers chased loads and often were unable to secure immediate coverage.

___________________________________________________________

With the lumber market hitting new highs every day and the shingle market taking increases as well, it may not be uncommon for a homeowner to decide to put a project on hold. Yes, the cost of material is up, but the mortgage rates are very favorable right now and now is a great time to build. So why is now a great time to build? Looking at the statistics below, you can see that a home that costs $300,000 just a couple of months ago could now cost $315,000. We know that the cost of our material has not increased by $15,000 on a project that size. When you look at four different quotes as shown below, you can see that our total cost of the quote does not increase by the 5% represented.

Date	Sell Price	Margin	GM$	Cost	Cost increase
6/17/2020	62,940	21.40	13,469	49,471
7/16/2020	62,940	19.52	12,286	50,654	2.39%

Date	Sell Price	Margin	GM$	Cost	Cost increase
6/10/2020	72,056	21.96	15,823	56,233
7/16/2020	72,056	20.50	14,771	57,285	1.87%

Date	Sell Price	Margin	GM$	Cost	Cost increase
6/4/2020	45,794	22.30	10,212	35,582
7/16/2020	45,794	18.69	8,559	37,235	4.65%

Date	Sell Price	Margin	GM$	Cost	Cost increase
6/10/2020	141,220	37.22	52,562	88,658
7/16/2020	141,220	36.19	51,108	90,112	1.64%

We can assume that over the next year, mortgage rates will increase which will have a greater impact on the monthly payment than the rising cost of materials that we are currently experiencing.

The National Association of Home Builders, NAHB, has found that “Lumber demand tends to be a reliable leading indicator of residential construction activity, thus the recent price hikes due to increased demand coupled with reduced mill capacity should be viewed as a sign that mills must ramp up production as the home building industry continues into the [spring] home buying season.”