Construction industry lumbers with rising price of wood

When building a home there are contingency costs. But for Bennie Shinn, he’s never quite experienced anything like the current lumber market.

Shinn, who runs BNR Construction LLC with his two sons, said the current shipping and supply issue for lumber and other building materials has “turned everything upside down.” He used to bid jobs by an average per square-foot, but the rapidly rising costs have made it near impossible to bid a job because of lumber costs.

“It’s very frustrating. Very frustrating,” he said. “Then people try to buy materials ahead of time and you can’t always do that, because you have to verify measurements. A certain bit of the process has to be done before you can order certain pieces of the project, therefore you can’t order things ahead of time such as floor systems, trusses, and those kind of things.

Shinn said his suppliers can’t guarantee prices. He shops around, but in the current market, if anything is to be found, “You better take it.”

“If you don’t, you’re subject to whatever price it is on delivery,” he said. “It’s a bad situation.

Lumber

According to Wells Fargo, last week, lumber futures contracts for May delivery were priced at $1,645 per 1,000 board feet, up about 60% from one month ago and 374% over the past year.

Shinn said, last year an 8-foot 2X4 was $3.49. Thursday, the same product is more than $11.

“You go to build a $350-$450,000 home and in today’s prices you’re tipping the scale at $700,000,” said Shinn. “It’s crazy.”

Shinn’s lead time for delivery has shifted from two to three weeks to more than 14 weeks, if at all.

“Some pieces we have been waiting on for over a year,” said Shinn. “It adds to some contentious moments and home owners don’t always understand, and it’s our fault. They don’t care what it is, but it’s not.”

Factors

“Sadly, I think there are some that are taking advantage of the situation,” said Shinn.

Jay Iverson, executive officer at Home Builders Association of Iowa, agrees.

“As a national organization, we are trying to collect receipts for similar houses built a year ago versus now ... working hard toward figuring out where there might be some price gouging going on,” Iverson said.

But, Iverson said there are a number of reasons for price hikes and shortages on building material.

“The whole supply chain is disrupted in a lot of different ways,” he said.

One issue is attributed to the shortage of truckers available to haul across state lines. Iverson said the HBAI is one of many organizations calling upon the federal government to lower the age from 21 to 18 for commercial drivers.

“Petroleum based stuff is an issue, too, ... your vinyl siding, shingles, plastic products, those are all part of the petroleum industry as well,” Iverson said.

Another issue is a decades old trade dispute between Canada and the U.S. and market manipulation by the neighbors to the north.

“In Canada, they’re just releasing just a little bit of lumber when there’s giant piles of it ready to go,” he said. “There’s also a 9% tariff on lumber. That’s part of it.”

To combat the slow release and high price of Canadian lumber, the NHA is lobbying for more harvesting of softwood lumber on U.S. territory.

“There’s a way to do that very easily, but once again, finding people to cut it and haul it is another issue,” Iverson said.

Demand

Iverson said rapid development has also contributed to the demand.

“And you don’t hear a lot about this, but I think a lot of our product is heading over seas. China is growing like crazy,” he said. “A buddy in the lumber industry told me that all of the containers ship from Oregon and that’s all they’re carrying is lumber toward China.”

Iverson said his son, who is also in the building trade, is working on the development of 450 homes in the Ankeny area. The last development he helped build was 150 homes.

“So you multiply that out across the growing areas of the country and there’s just an insatiable demand of products,” Iverson said.

Low interest rates are also a factor with homebuyers across the U.S. who are up against one of the tightest housing markets in modern history. Even amid a pandemic, median home prices are up 16% over the past year with Iowa Home Sales up 6.5% from last year. As Iowa homes average 54 days on the market, buyers are struggling to find what they are looking for. With nearly 35% lower inventory of homes from the previous year, building new has become an appealing option for some. With the cost of building and remodeling, Iverson urges those to use caution so that they don’t over buy.

“We’re not heading towards California $2 million dollar starter homes or anything like that, but I think there will be a point where somebody overpaid just because of where it’s at ... and banks might be in trouble with foreclosures,” he said.

Future

As a conglomerate of issues are in need of a resolution, Iverson said he doesn’t expect prices to come down any time soon, if at all. But he does expect them to “settle down.”

“That’s kind of the scary thing,” he said.

As for builders like Shinn, they will continue to do the best they can with what they’ve got.

“In my particular situation, I don’t have another business,” he said. “I’m not a farmer or anything else to fall back on. This is my livelihood. If I’m not working, I don’t eat. I’ve got my two boys that have their kids, and those of course are my grandkids, and so grandpa doesn’t want to see that happen. It’s tough.”