The coronavirus pandemic has boosted lumber demand throughout the United States, a surge that has pushed prices to record heights, raising the average price of a new single-family home by more than $16,000.
High lumber prices and limited supplies have, in turn, created problems for the residential construction industry, forcing not just price increases but also delays.
This convergence of COVID-caused events, as you’d expect, has been a boon for Arkansas lumber mills but a headache for Arkansas homebuilders.
The rise in lumber prices was variously called “unprecedented,” “astronomical” and “meteoric” by timber industry and homebuilding experts interviewed by Arkansas Business.
The composite price for framing lumber hit a record $952 per 1,000 board feet, according to the Sept. 11 report by Random Lengths of Eugene, Oregon, the pre-eminent source of information about the wood products industry. That’s two and a half times the year-earlier price.
And though prices are expected to decline in the fall, as inclement weather curtails construction, November futures were trading at more than $600 last week.
“It’s the damnedest thing,” Steve Anthony, president of Anthony Timberlands of Bearden, said about the rising demand for lumber. “I can’t even explain it. I’ve heard anecdotal opinions about what’s created this issue.
“But in March, when the pandemic first really struck, our market was already bad. Last year, 2019, was the second-worst year in our company’s history. We had about five good years and then 2019 was just awful,” he said.
“And the first three months of 2020 were just awful, and then so the pandemic hits and you just assume it’s going to get worse. And for three or four weeks it did get worse. Prices kind of collapsed. They passed the stimulus bill that had the $600-a-week unemployment benefits in it and we couldn’t staff our mills, so we laid off night shifts at both of our pine mills,” Anthony said.
After three or four weeks, prices started moving up, “and then it just started exploding.” Normally, Anthony said, prices per 1,000 board feet of lumber might rise or fall $5 per week. A really good market might see increases of $15 or $20 in a week.
But beginning in May, lumber prices started jumping by $50, $75 or $100 per week, “which was completely unprecedented, unheard-of, never happened before,” he said. “It’s continued every week since May.”
Anthony thinks the high cost of lumber constitutes a bubble. At his company, “almost all items are at least twice as high as they’ve ever been in history. And we’ve got some items that are three times as high as they’ve ever been in history.”
Ted Shorack, an assistant editor at Random Lengths, echoed Anthony’s description of the price run-ups as “unprecedented.”
“Mills have just been raising prices consistently every week and not really having any trouble getting the prices that they want for specific lumber items,” he said. “This is really a historic run for the lumber market.”
Lumber Market Report
Supply and Demand
What’s behind the surge in lumber prices? David Logan is the director of trade and policy analysis for the National Association of Home Builders, which calculates that the lumber spike has caused the price of an average new single-family home to increase by $16,148 since April 17. Logan, who’s also served stints as chief economist for the U.S. House of Representatives Ways & Means Committee and as senior economist for the Joint Economic Committee, provided the following explanation.
“There are two fundamental reasons for this astronomical rise, meteoric rise in prices, one on the supply side and one on the demand,” he said. “In this case, the supply driver of the problem is the primary culprit, and that has been fully brought on by the pandemic.”
As state and local governments began to issue stay-at-home orders and lockdowns and to decide which industries were essential, many lumber mills “effectively ceased production,” although only for a short time, a week or two.
“Starting in late March, going into April and May, some of the biggest lumber companies began cutting their capacity by up to 40% in some cases,” Logan said, resulting in reduced inventories.
On the demand side, no one forecast the increase in do-it-yourself home improvement projects, which many people undertook once they’d been furloughed or ordered to work from home because of the pandemic. “That increase in demand is why Home Depot and Lowe’s both set earnings records in the second quarter of this year,” Logan said.
Contributing to the demand was the homebuilding industry, which was the first major industry to come out of contraction. “Not only did it reboot, but it rebooted more quickly than even industry insiders expected,” he said.
Homebuyer traffic dropped significantly during the initial lockdowns, “but when it bounced back, you had a lot of people who had been sitting on the sidelines just chomping at the bit, and that has led to a big rebound in the housing sector and is the reason housing is, far and away, the largest bright spot in the economy right now,” Logan said.
Homebuilders Weigh In
John Rausch, chairman and CEO of Rausch Coleman Homes of Fayetteville, cited a couple other factors contributing to homebuying demand: low interest rates and the pandemic-linked desire by some to leave cities and move to less densely populated areas.
Rausch Coleman will build about 4,000 houses this year in Arkansas, Alabama, Kansas, Missouri, Oklahoma and Texas, seeing revenue of $700 million to $750 million, Rausch said.
Soaring lumber prices have had a big effect on his business. “We’ve seen anywhere from 10, 20, 40% price increases in different markets,” he said. “We haven’t seen a lot of relief either right now with lumber prices going so far up. It has definitely affected it, and not only lumber but other materials and supplies that we use as well have greatly been impacted also.”
Rausch Coleman is confronting the price increases in a number of ways. “We are having to absorb it where we can,” Rausch said. “We’re having to increase [home prices] where we can. But the biggest problem with increasing is we’re running into appraisal issues because the prices have gone up so fast, that you can’t get appraisals. That’s where it’s really affecting the homebuyer.”
Because the company builds so many homes, it’s also able to realize economies of scale, “where we can,” he said.
Randy Wright, owner of Randy Wright Builders of Little Rock, had planned to start work on a 173-home development on White Oak Crossing in Maumelle. The spike in lumber prices means the project is on hold “until lumber prices come down.”
Wright builds mostly custom homes — he built three last year — most of them in the Woodlands Edge neighborhood of Little Rock, and the Maumelle development was a new venture for him and a group of investors. The streets are being built, and “we were going to try to start the model home while the streets were going in so we could have it all done,” Wright said. “But we’re putting the brakes on the home because of the lumber prices.
“We had budgeted $30,000, $40,000 for lumber, and it’s at least doubled,” he said. “We can’t spend $80,000 on lumber. We’d rather wait. And that’s what I’m seeing other builders are doing. Even the ones that had slabs are just stopping and saying we’re not going any further.”
Wright, who has been building houses since 1988, said he’s seen runups in lumber prices before “but not this high.”
Logan, of the NAHB, noted that the housing sector represents about a sixth of the U.S. economy and record lumber prices are “doing damage to the housing sector that, quite frankly, is just lost economic output.”
Max Braswell, executive vice president of the Arkansas Forestry Association, called lumber’s record pace temporary. “It won’t last forever,” he said. Braswell expects an equilibrium to be reached, so “we will be able to see strong markets for timber products but also the ability to maintain that home construction, because that is the driver for the use of our products, and you want to see that balance in the marketplace.”
Anthony Timberlands has been working hard to meet demand, with its two pine mills running two shifts. Steve Anthony, however, thinks prices are at or near their peak.
He noted that the industry is “very cyclical, and it’s become increasingly so,” adding, “When it gets good, all you can think of is, well, we’d better make all we can because when it turns, we’re going to lose a bunch.”