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Jan. 28, 2023

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Spiking lumber costs splinter Clark County homebuilders’ budgets

By , Columbian business reporter
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Stacks of lumber sit on the lot ready to be used to construct apartment buildings on Friday at the Latitude 45 apartment complex in Vancouver. Local builders have had to navigate rising lumber prices amid a national spike in demand.
Stacks of lumber sit on the lot ready to be used to construct apartment buildings on Friday at the Latitude 45 apartment complex in Vancouver. Local builders have had to navigate rising lumber prices amid a national spike in demand. (Joshua Hart/The Columbian) Photo Gallery

When Vancouver-based Ginn Development began work on the Latitude 45 apartments in 2019, the cost of lumber per unit for the east Vancouver complex was $8,188.

Phase 2 of the project kicked off this year — a similarly sized cluster of similarly designed apartment buildings on an adjacent parcel of land. The lumber cost per unit: $22,805.

High demand for housing during the COVID-19 pandemic has sparked shortages and price increases for a whole host of building materials — everything from plumbing and wiring to garage doors. But the biggest crunch by far is lumber, where prices have climbed to sky-high levels nationwide, and Clark County builders are feeling the pain.

“There have been big surges in the past; in the early 2000s during the height of the housing boom before the major recession, you saw some pretty large increases in the cost of materials,” said Levi Means, regional sales manager at Parr Lumber, which serves builders in Southwest Washington and Central Oregon. “They pale in comparison to this. (They were) fractions of what we’re seeing now.”

Average lumber prices have climbed more than 300 percent since April 2020, according to the National Association of Home Builders. The Random Lengths Framing Lumber Composite — calculated based on prices in the U.S. and Canada — pegged the price of lumber at more than $1,400 per thousand board feet Friday, compared with less than $450 in mid-June of last year.

That translates to almost $36,000 added to the price of an average new house in the past year, according to an April 28 National Association of Home Builders news release.

“I’ve never seen (a price spike) as sustained as this with no light at the end of the tunnel, which really is problematic,” said Tracey Doriot of Vancouver-based Doriot Construction, who serves as president of the Building Industry Association of Washington.

The speed of the increase means the actual cost when it comes time to order lumber for a project can far exceed the estimate that was used when the project contract was signed. The differential ends up hitting either the buyer or the builder, depending on whether the contract was set up with a locked-in price or the ability to raise the final price to account for increased material costs.

A five-figure increase in the final price can eat up a builder’s entire profit margin on a project, and it can put the home out of reach for the buyer altogether.

“When it goes to closing and having the financing process finished, a lot of times that difference can make or break a home deal,” said Andrea Smith, communications and education program manager for the Building Industry Association of Clark County.

Buyers of large custom homes can usually accommodate price swings, Doriot said, but first-time homebuyers have often already taken on the largest mortgage they qualify for and don’t have a way to come up with another $30,000.

The price environment has prompted changes in the way builders approach contracts, Ginn Development owner Patrick Ginn said. Fixed-price contracts have fallen heavily out of favor, although the price spike occurred so quickly that some builders are still finishing projects that went under contract before the surge.

“A lot of builders are actually stopping sales right now for the next six months to a year because they’re so busy,” Smith said. “And they can’t say, ‘In 12 months (we’ll) get around to building your house, we’re going to lock into this price right now.’”

Ginn said his company has at least been able to avoid big delays on its existing projects but only by paying significantly more for lumber and other materials, which raises the price floor for entry-level housing.

“We can’t deliver houses in the low ($300,000s) anymore,” he said. “Even townhomes, small lots that were once ($300,000) are now ($380,000) and ($390,000) and closer to ($400,000).”

Other projects have seen their schedules thrown off during the wait for supplies. Parr Lumber has seen a number of starts and stops on construction jobs, Means said, and suppliers have been scrambling behind the scenes to make sure lumber still arrives at job sites on time.

“We’re working harder to do the same thing,” he said.

Job site thefts on rise

Chuck Waldal, general manager of Kingston Homes in Ridgefield, said he’s seen an increase in thefts at job sites this year.

It’s always been a minor concern in the industry, he said, particularly in new subdivision projects that don’t yet have people living nearby. But this year, there have been several incidents, including earlier this week when about $800 worth of lumber disappeared from a job site in Ridgefield overnight.

“The framer just showed up to work, and the pile of studs were gone that he was going to use that day,” he said.

About $750 in sheeting vanished a couple weeks earlier. About two months ago, the company had to redo part of the wiring on a house after someone stripped some of it out, presumably to sell off the copper.

“I’ve talked to other builders, and they’re having the same issue,” he said.

The price increases are driven by a wide range of factors, Doriot said, including delayed operations at lumber mills, low truck driver availability for transportation and even just bad weather, all of which have converged for a “perfect storm” in the lumber world.

The pandemic plays an underlying role in several of those issues, he said. Although some of them predate the arrival of COVID-19, such as the fact that the country’s overall mill production capacity never fully returned to pre-recession levels.

The biggest COVID-19 impact is on the demand side, he said. A year of remote work has prompted millions of families to seek out newer, bigger and often more suburban houses, driving up demand for new construction and resale homes alike.

That phenomenon also helps explain why the market, at least so far, has seemed willing to tolerate the record-breaking lumber prices. Competitive bidding is driving up median home prices throughout the market, Ginn said, so buyers are prepared to spend more regardless.

Most of the builders agreed that home prices will hit a ceiling where consumers finally become unwilling or unable to shoulder the increased costs, causing the demand for lumber to relax.

“It can’t continue to climb forever,” Means said. “People will stop writing the check at some point.”

The trouble is that no one knows when the market will hit that point or when. In the immediate future, builders like Doriot and Waldal said they don’t see an end in sight. The demand isn’t going to go away entirely, Doriot added, because the pandemic has led to a large-scale shift in the kinds of homes people want.

“I think there’s going to be a new normal in lumber prices,” Doriot said. “And I don’t think any of us are going to like it.”

Columbian business reporter