FARGO - Lumber prices have risen dramatically this summer around the U.S. and the Fargo-Moorhead area has been no exception.
Supply chain disruptions caused by the COVID-19 pandemic and robust home construction and remodeling demand fueled by low interest rates has created “a perfect storm” for boosting the prices builders - and ultimately homeowners - are paying for dimensional lumber, oriented strand board, plywood, timber trusses and other products.
“The numbers are just kind of going through the roof,” John Gunkelman, the owner of Fargo’s Dakota Construction said Thursday, Aug. 27.
Gunkelman, the immediate past president of the Home Builders Association of Fargo-Moorhead, said price increases have prompted more builders to put time limits on their construction bids, or to add price-escalator clauses to contracts to protect their own bottom lines.
“Random length lumber since April has increased 130%. …The other thing with the prices increases, we’re getting quite a delay on delivery on quite a few things,” Gunkelman said.
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“Framing lumber has gone up about 80% since April. The OSB has gone up about 100% from a year ago,” Gunkelman said.
Southern yellow pine for pressure treated lumber “is getting to be hard to get sometimes,” he said. And oriented strand board used for roofing “is going out of the lumber yard as fast as they get it in.”
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The lumber package makes up about 10 or 15% of the cost of home construction, Gunkelman said, so the component price increases add up.
About 80% of lumber for homes is cedar, pine, fir or redwood. A recent spike in these softwood lumber prices has increased the average price of a new single family home by $16,148 since mid-April, the National Association of Home Builders recently reported.
“Without increased domestic production and reductions in Canadian tariffs on softwood lumber, these higher input prices will slow the market,” the NAHB cautioned.
Despite rising lumber costs, existing home sales saw strong growth in July, marking a second straight month of significant sales gains, the National Association of Realtors reported. Total sales including single-family homes, townhomes, condominiums and co-ops jumped 24.7% from June. June had also seen a 20.7% increase. Overall, home sales in July were up 8.7% from July 2019.
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That booming housing market is a major driver of the lumber price increase. But disruptions in production and transportation of lumber due to the COVID-19 pandemic have also played a big part.
Some lumber mills had closed early in the pandemic due to stay-at-home and social distancing measures put into place by states and local governments. At that time, housing demand was expected to be low.
What producers weren’t expecting was the massive uptick in demand for do-it-yourselfers and that the housing market would fare much better than other sectors of the economy. Construction demand not only hasn’t abated, but far surpassed mills’ projections, the NAHB said in a July report.
Mortgage interest rates are also at historic lows.
“Some banks are at 2.6%,” Gunkelman said, and that’s attracting new homebuyers and people who want to move into bigger homes. Increasingly, people are adding rooms to their wish lists to use as home office spaces.
“It’s sort of the perfect storm,” he said. The low interest rates continued to stoke home demand, while the industry has had to work through supply chain disruptions. “It sort of all plays together.”
Bill Huber also uses “the perfect storm” analogy when describing the sharp upward trajectory of lumber prices.
The COO for Simonson Lumber said lumber yards and contractors “are definitely eating part” of the rising costs.
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Huber said Simonson has been able to supply products to builders “99% of the time,” though there’s sometimes a wait. “We buy product months ahead at a time, so we’ve got a pretty good source of supply.”
Huber said costs passed on to homebuyers are not proving to be much of a drag on demand, thanks to the low interest rates.
“As a percentage of the total project, $14,000 on a $350,000 to $400,000 house is not going to affect” construction and buying decisions, Huber said. “Especially when you look at the reduced mortgage rates available today. It might only affect a house payment by a few dollars a month.”
