Like many other families affected by the impact of the stay-at-home pandemic, Deborah Cowles saw it as a grand opportunity to improve the look of a few things around her Centennial home.
But the timing of a desire to replace an aging cedar fence just wasn’t working out, so Cowles chose to put it off for a few months, to when things would work out more smoothly.
Smoothly, perhaps. Inexpensively, no.
“I kept the companies’ bids for a year and when I reached out again, the same project, the same company, it was more than a $1,000 more expensive,” Cowles said. “Another company was $2,000 more.”
What was worse for Cowles was the inability of a contractor to guarantee the wood she wanted. The companies were offering what they had, which wasn’t much.
“It was incredible,” Cowles said. “There was a run on lumber.”
Market experts say the cost of lumber — measured in 1,000-foot increments — has tripled or more since last year, an unprecedented demand exacerbated by low inventory caused by the pandemic and a dim view of any improvement.
“When the restrictions of the pandemic kicked into gear, in April and May last year, the sawmills saw what was happening, with whole sectors of the economy on pause, and they assumed the worst, flashing back to the crisis of 2005 through 2009,” said Dustin Jalbert, an economist who specializes in the softwood lumber market at Fastmarkets, an international commodity price reporter with offices in Massachusetts.
The mills “curtailed and cut production heavily, furloughed employees, and the slowdown in demand that was expected never happened,” he said. “We all expected there would be a cooling in the cost of new homes, the cost of renovation projects with higher contractor quotes. But we’ve just not seen it in the market and it’s nonstop.”
With one of the hottest housing markets in the country, driven harder by historic low interest rates, Colorado has been at the leading edge of a pricing boom that shows no pull-back.
“Homebuilders planned production accordingly, and then COVID-19 hit,” said Ali Wolf, an economist at Zonda, a housing market research firm. “At first the housing market slowed to a crawl, but then something interesting happened: The combination of the lockdowns and more time spent at home made people realize they wanted to live in a home that met their evolving needs.”
By December 2020, new home contract sales were already 43% above the same period a year earlier, according to Zonda’s New Home Pending Sales Index.
As a result, 86% of builders report major supply disruptions, Zonda data shows, with 96% of them reporting price increases in March and April with the cost of lumber being the most critical component.
“Lumber prices are up 250% compared to last year,” Wolf said, “which makes building a new home a whole lot more expensive and pushes prices up for the consumer.”
Some estimates, including from the National Association of Home Builders, put the added cost of a new-construction residential home at nearly $36,000 — and it’s rising.
“Home construction was already at a high, and add to it more home rentals and because people began to hate where they were living after seeing it for 24/7,” according to economist Elliot Eisenberg. “And now, along with all the building and remodeling, there are these outdoor huts being built to be socially distant compliant and the demand for wood is going through the roof.”
The rate on a 30-year mortgage averages 3.04%, a drop of nearly 84% from the 1980s, Eisenberg noted.
“Conversely, today, the price for a thousand board feet of lumber hit a high of $1,300 when only a year ago it was about $328,” he said. “In 2009 it was just $163. Nothing is forever. And I don’t think we’ll see any reversal.”
Although prices keep rising, the demand is moving right along with it, despite expectations otherwise.
“The cost of housing is impacted by several factors that often are outside of a builder’s control: land availability, labor shortages, and the price of lumber and other materials,” said Ted Leighty, CEO of the Colorado Association of Home Builders. “When any of these costs increase, it makes it harder to provide enough attainably priced housing to meet our state’s demand … and in turn prices hundreds of homebuyers out of the market.”
Leighty said there’s been a press for legislators to help. In March, more than three dozen associations and trade groups wrote U.S. Commerce Secretary Gina Raimondo to “examine the lumber supply chain … and seek immediate remedies that will increase production,” according to a copy of the letter.
“With better-than-expected housing demand and unprecedented activity by the do-it-yourself segment, builders are seeing shortages of lumber resulting in ever-lengthening delivery delays,” the letter notes. “The potential for housing and construction to grow and lead the economy is limited as long as lumber remains expensive and scarce.”
Much of the supply problem isn’t uniform across the country. The number of trees in the American South are just fine. It’s the beetle- and wildfire-ravaged forests of the Pacific Northwest along with a Canadian sector burden by heavy U.S. tariffs on their product that’s beating down the supply chain.
“Since maybe the turn of the year, people have realized the construction industry didn’t go the same way as the global financial crisis, and it recovered far quicker than anyone anticipated,” said Peter Knowles, executive vice president at Rider Levett Bucknall, a global construction costs consultancy. “Suppliers and producers are not going to quickly get back to that normal production, and as the economy is recovering, we’ll see even more projects coming to the marketplace.”
The end-game, Knowles said, isn’t likely to show for at least the balance of this year, perhaps even longer.
Economist Jalbert thinks the same, with “positive demand surge and negative supply shock” continuing.
“The looming ghost of the past housing crisis, so many of the lumber mills closed and that gives everyone pause, a caution against capital expenditure” needed to build new facilities to meet demand, he said. “The demand side has to cool, mortgage rates tick up and push some homebuyers from the market. The crazy prices we’re seeing will come off, but not likely return to the historic pre-pandemic average.”
For the past 35 years, Adams Lumber Company in Centennial has supplied many of the area’s builders and a fair number of DIYers, owner Mark Adams said.
But the surge in lumber prices is beyond anything of his experience.
“It amazes me that a semi of lumber that comes in, not long ago we paid $15,000 for that load and now it’s like $55,000,” he said. “You swallow hard.”
What he’s also seeing is a mad rush for inventory fueled by shortages across the metro region. The biggest shortage: cedar fencing, like the type Cowles in Centennial is looking to buy.
“We’re getting calls from fence builders we’ve never even heard of before, asking what we have and how much and how they’ll buy it all without even asking a price,” Adams said. “We try to be very protective of our local customer base to ensure we don’t short-sell them. But even now it’s difficult some days to even find the inventory. Many times it’s just not available.”
That’s putting an even bigger press on local builders who have enough to supply to handle their needs while others don’t.
Anecdotally, the Colorado Association of Home Builders and Adams Lumber each say they have heard on-site theft of supplies — lumber especially — has increased several-fold.
“It’s all they can do to hold onto the stuff,” Adams said, noting he’s even seen an increase in efforts to acquire product through telephone fraud scams.
For Cowles, it simply means she’s taking a pause to see whether the new fence is really a home-improvement project she wants to take on after all.
“It’s really caught us off guard,” she said. “The main reason to wait might just be because they can’t get the quality of wood we really want, and the substitute wood they’re offering really doesn’t have a history in Colorado, so we don’t know how it will hold up.”
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