Lumber prices increasing as production remains slow; more raises likely

Lumber prices increasing as production remains slow; more raises likely

CHAMPAIGN – If you calculated the price of installing a new deck last year but never got around to building it, you'd better update your figures.

Lumber prices have been climbing this year, and some lumberyard operators say an end isn't in sight yet.

"We aren't getting any feedback that prices are softening right now," said Bruce Hage, vice president of Hundman Lumber in Champaign.

Hage has told contractors he can't say how much lumber will cost for homes built in July.

"Our replacement cost for product moving out the door this week and last is already up," he said. "Professional builders are knowledgeable that prices are going up. ... It's just now beginning to impact the cost of construction."

But Andy Armstrong, president of Armstrong Lumber in Urbana, notes that lumber prices are coming off historic lows last year.

"Lumber prices have never been as affordable as they were in 2009. We will never see those prices again ... We're just coming back to where we should be, and we're not even there," he said.

Since Jan. 1, the price of lumber used in building typical homes has gone up about $1.03 per square foot, said Bill Peifer, co-founder of Signature Homes in Champaign. For a 2,200-square-foot house, that equates to a $2,266 price increase.

But Peifer said that increase isn't much compared with price increases associated with energy code requirements recently mandated by the federal government.

Those requirements – which call for better-insulated walls and basements – have raised the price of a new home by $4,000 to $5,000, Peifer said.

Other price components of new home construction are holding fairly steady, he said. And given recent history, lumber price increases aren't as bad as they might seem.

"We're still paying less than we were three or four years ago for lumber," Peifer said. "That's one of the things that has helped new home prices stay in check."

Hage and Armstrong both say domestic demand for lumber isn't the major factor driving up prices.

In 2008 and 2009, several lumber mills closed or curtailed production as a result of the recession, Hage said.

"Production capacity was severely reduced in 2009 going into the winter, and the same thing happened at the retail level," he said. "Our inventories were driven down, and we tried to be as lean as possible."

Now with spring here, lumberyards are trying to fill inventories.

"Any uptick in demand has a huge effect," Hage said. "These mills just can't snap their fingers and have new logs coming off the mountain and new saws."

Hage predicts mills will keep production capacities low until they have assurance that demand will continue.

As Armstrong points out, lumber supplies are commodities.

"They fluctuate just like stocks. They go up and down," he said, although the recent increase has been "quicker" than most.

"It's usually more of a steady rise," he said.

But in addition to lumberyards building up spring inventories, China, South Korea, India and several "emerging-market" economies are buying up cheaper U.S. lumber, Armstrong said.

Lumber production is only at about 50 percent capacity, he said.

"Fewer mills are in production right now. That decreases supply, and that affects the price of the product. As production does increase, that will drive prices back down," Armstrong said.

"The highs don't last very long, and the lows don't last very long," he said.

Hage and Armstrong both said they're not seeing huge demand for lumber this spring.

"We would like to see more demand in this area, but we're thankful for every bit we get," Armstrong said, adding the commercial-builder market is still "very tight."

Hage said sales this year are "similar in volume to this time last year," but he senses things are heading the right direction.

"We're looking at what has been a pretty ugly bottom of the market," he said. "I'm optimistic about a slow, gradual improvement in our industry."

From a consumer standpoint, that would have a beneficial effect on prices.

"The slower and the steadier the demand for new housing construction and remodeling, the quicker we're going to return to some normalcy," Hage said. "But if the demand button is punched, the switch is flipped and there's quick demand ... the price goes up."

As for that deck project, Hage suggests homeowners go ahead with what they've planned.

"If it's an improvement you would deem as a need or necessity, just continue on," he said. "If you get into the game of guessing when and where prices will go, you're likely to lose the game."

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