Cost of two-by-fours soars
By: Ryan Johnson, Grand Forks (ND) Herald
It's hardly a housing boom, but a visit to a lumberyard and a close look at the price tag for everything from plywood sheets to two-by-fours sure makes this spring feel like one.
Lumber prices have jumped in recent weeks to levels not seen in more than four years — but these increases aren’t caused by the high demand for lumber during the 2005 boom.
But it’s too early to know what it will mean for local businesses and builders as the construction season begins.
“Those that were planning on starting something in the spring probably already made that commitment,” said Bob Peabody, owner of Lumber Mart in East Grand Forks.
“But those that are on the border are going to have some sticker shock.”
Don Larson, assistant manager of Simonson Lumber and Hardware in Grand Forks, said he’s seen the biggest price jumps in plywood.
One type used for sideboard sold for $10 a year ago, then dropped to $7.95 two months ago. Today, it would cost almost $17.
The recent increases are “substantial,” but he pointed out many lumber prices had fallen to “quite a low” earlier this year as a result of less demand.
“Everybody looks at it and says, ‘Jeez, it’s gone up more than double since January,’ ” Larson said. “$7.95 was an exceptionally low price. It just makes it look like so much more of a spike when you start real low.”
Larson said the high prices last happened before the recession and at the peak of the housing bubble.
“At that time, it was supply,” he said. “Right now, it’s because mills aren’t running, and the ones that are running are out for maybe three or four weeks.”
It’s happening now, Larson said, because it’s the time of year when stores restock their inventory to gear up for the construction season.
“Everybody reduces their inventory through the winter because you don’t want to sit on dead stock,” he said. “As January and February rolls around, then everybody starts ordering again.”
What’s going on now is more complicated than the basic supply-and-demand concept, Peabody said. The recession meant lower demand for lumber, he said, forcing mills to sell their products for less as they tried to stay in business.
“We’ve lost a very large portion of our production,” he said. “These people were just forced right out of business because the prices had gotten so low that they couldn’t afford to manufacture at those prices.”
Some of the mills that managed to make it through the recession still aren’t running at full capacity. That means the volume now being produced is much less than retailers and builders are accustomed to, Peabody said.
Even though demand has dropped, the supply went down faster and caused most lumber prices to increase.
“It’s surely not being caused by an overabundance of demand,” Peabody said.
Some summertime projects won’t see much of a jolt from the recent increases. Larson guessed the costs of lumber for a typical deck have gone up 15 percent since January — a big increase, but not nearly as bad as other products.
Decks are made out of either treated cedar or a composite material, Peabody said, and neither has been affected as much as other lumber products.
The prices for a sheet of plywood or a two-by-four have seen the largest increases. Both are used in construction and could make it more expensive to build.
Peabody said a general rule of thumb is that lumber makes up about one-third of the cost of building a new house.
Larson admitted he’s having a hard time following this “really bad spike” after almost 30 years in the business. High prices went on for “quite a while” during the housing boom, but he said it’s hard to know just when prices will start to go down again.
“I don’t have that miracle ball in front of me,” he said. “I wish I did.”
Peabody’s been in the business for 53 years and said there are many factors that work together to influence lumber prices.
A wet cycle in the southern U.S. can cause less supply and higher prices because that’s where most of America’s lumber is grown. The recent earthquake in Haiti affects prices because of growing demand for construction materials as the country rebuilds.
And China is buying more lumber from Canada, a major exporter to the U.S., meaning there’s more of a strain on Canadian manufacturers to handle the demand of two large markets.
The latest surge in lumber prices happened in just a few months, and it could fall just as rapidly.
“Today, every indication is that this spike that we have is probably peaked,” Peabody said. “We’ll find out in the next two weeks how much life there really is in it, and whether it’s smoke and mirrors or if it’s a reality.”