Pat Ferrier, Fort Collins Coloradoan
Mon, January 24, 2022, 7:28 PM·9 min read
Two years ago, when Carl Herrmann thought about building a new home northeast of Fort Collins, he spent a year designing, choosing materials and creating a budget.
Last fall, he penciled out costs to set a budget. His framing package — studs, trusses, floor and roof sheathing — came in at about $45,000.
By early spring, when his builder placed the order, the cost had jumped to $55,000. Today, with the price of lumber surging to historic levels, that same package would have cost about $75,000, a 67% increase in only nine months.
That, Herrmann said, could have put his dream home out of reach.
“I honestly don’t know if the bank would have funded it,” said Herrmann, operations manager at Sears Trostel Lumber & Millwork in Fort Collins. “It might have pushed us outside our budget.”
Herrmann’s shock is familiar to anyone who’s built a house, purchased a new home, finished a basement, renovated a kitchen or bought a two-by-four at Home Depot recently.
Soaring lumber prices fueled by high demand, low inventory, pandemic-forced slowdowns at sawmills, Canadian tariffs and escalating shipping and trucking costs, are adding roughly $36,000 to the price of a new home, and doubling or tripling the cost of remodeling, according to the National Association of Home Builders.
In Fort Collins, the median home price of $510,215 through April is up 17.1% compared to the same time last year, the result of low interest rates, high demand and high construction costs, including lumber.
Some lumber dealers don’t believe lumber prices will level off until demand for new homes decreases, and that won’t happen until interest rates rise.
Current lumber prices create problems not only for consumers, but for home builders who often have to price out a new build months in advance, said Steve Spanjer, owner of custom home builder Spanjer Homes in Fort Collins.
Spanjer absorbs a 5% increase on unit costs on new buildings, he said. Beyond that, the contract calls for the home owner to pay the difference.
Hartford Homes is waiting to put new homes on the market until they know what final costs will be, said Mike Welty, president of homebuilding. “We will release houses when we feel comfortable with what the price increase is” so there are no surprises for the buyer.
The company also halted construction in a few of its communities until this month or next so it could set expectations for buyers and avoid large price increases.
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About 70% of the softwood lumber used in Colorado home building, like pine, fir and cedar, comes from Canada.
When the pandemic hit in March 2020, the industry anticipated a market slowdown that never materialized, said Scott Glasscock, owner of Mawson’s Lumber in Fort Collins. Some mills shut down production or had trouble getting logs, he said.
Instead of a slowdown, the industry saw “a huge demand of people staying home and adding to, renovating or purchasing new homes,” Glasscock said. “It’s just driven demand off the charts.”
When demand for homes spiked, the mills “just couldn’t keep up,” Spanjer said.
Builders and suppliers alike say a 20% tariff on softwood lumber from Canada imposed by then-President Donald Trump in 2017 — lowered to 9% late last year — contributed to the increase in U.S. lumber prices and therefore the cost to build a home.
The tariff — a tax charged on goods coming into or out of the country — made it more expensive to import lumber from Canada. Prices went through the roof, rising from a 52-week low of $344.60 in May 2020 for 1,000 board feet to a 52-week high of $1,670.50 earlier this month.
As of May 19, July lumber futures were on the decline, but still remained higher than at any point last year. That doesn’t affect today’s prices but will bring down prices over the next 30 to 60 days, said Curt Viehmeyer, president of Sears Trostel Lumber & Millwork in Fort Collins.
The average 2,085 square-foot single-family home can include 13,127 board feet of framing lumber alone, according to a report from SUNY College of Environmental Science and Forestry.
Because softwood lumber is traded as a commodity, like sugar or pork bellies, prices are volatile and change daily.
Spanjer said a two-by-four, which used to cost 54 cents per board foot, now costs $1.49 per board foot. Translated to an 8-foot-long, two-by-four stud, the cost would now be $11.92 instead of $4.92.
A four-by-eight sheet of 3/4-inch floor sheeting was $18.50 per sheet and is now $73.28, a fourfold hike, Spanjer said. And, the 1,000 board-feet of framing lumber, which just months ago cost $369, was selling for $1,630 in early May.
“Everybody was unsure what COVID would do to the economy, so they scaled back,” Viehmeyer said. “They didn’t know what demand was going to be so they didn’t stockpile a bunch of logs or anything like that. When demand really ramped up at the beginning of this year they didn’t have the raw material to cut.”
Specialty hardwoods, like those used in custom trim, are generally produced in the U.S. and are not seeing the same volatility in prices as softwood, although hardwood is getting more expensive, too.
The National Association of Home Builders is pressuring the Biden Administration to find solutions to increase production and bring prices down, including renewing the softwood lumber agreement between the U.S. and Canada.
Jeffrey Schneider, president of Armstead Construction in Fort Collins and chair of the Colorado Association of Home Builders, said the organization is working with its congressional delegation to see what can be done, including addressing tariff and supply chain issues and the softwood agreement.
The sticking point to the lumber agreement from the U.S. perspective seems to be a claim that Canada unfairly subsidizes its softwood lumber industry, something the Canadian government disputes.
Oriented Strand Board, commonly known as OSB, used in walls, floor and roof decking, has seen the largest price increase, going from $9 for a half-inch, four-by-eight sheet to $70 because of a shortage in the resin/glue that holds the wood chips together, Schneider said.
Hurricanes and deep freezes that hit Louisiana 18 months ago and Texas last year disrupted production, accounting for the shortage and affecting the supply and prices “of anything that requires glue,” Schneider said. “It hurts all attempts at affordability/attainability.”
Schneider said one client put off building a new home for a year to see what will happen to costs; two others put renovation plans on hold for the same reason.
He says the industry expects it will likely be another 12 to 16 months before the supply chain gets back to normal and there’s some ease or stability to prices.
One custom home client saw the framing package jump $100,000 over the original estimate, Schneider said.
“There’s no price guarantee at all,” he said. “In the past we would get 180-day holds or for three to six months we could guarantee the price. Now we can’t guarantee the price one day to the next.”
Pallets of wood and supplies sit in the lumberyard at Mawson Lumber and Hardware in Fort Collins, Colo. on Tuesday, May 18, 2021.
Supply chain economics
Hard hit by a record backlog of trucks and a shortage of long-haul truck drivers, the industry is stressed up and down the supply chain, said Zachary Rogers, assistant professor of supply chain management at Colorado State University.
Production of new trucks, which are increasingly sophisticated and full of technology, has slowed because of a shortage of semiconductors used in the computer systems. “The technology makes the trucks much safer but it requires a lot of computing power,” he said.
Truck production, which used to take nine months, now requires more than a year because of the semiconductor shortage. “The spike in e-commerce has definitely played a role in the limitations we’re seeing around distribution for many products, including lumber,” Rogers said.
Typically, e-commerce grows about 15% per year, but last year, due to the limits on brick-and-mortar stores it went up 45%, he said. “Essentially, demand for trucks for e-commerce jumped ahead by three years. There is no fat in the supply chain so we didn’t have any reserve trucks to fall back on.”
Now, there are fewer trucks and fewer drivers, and high demand for both. The spot price for a flatbed truck in April 2020 was $1.84 per mile — now, it’s $2.94, Rogers said. “It’s tough for lumber to even get transported, the demand for trucks is so tight.”
The driver shortage is real, something the trucking industry has been dealing with for a while, he said, but it’s more pronounced now due to the increased need.
A majority of of truckers are closing in on retirement age and there’s not a crop of younger people in the pipeline, Viehmeyer said. “That’s forcing a long delay in getting products and a 15% to 30% increase in shipping costs over the last six months,” he said.
For U.S.-produced hardwoods, the major issues are also shipping and workforce.
“It’s a strange situation,” Viehmeyer said. “The unemployment rate is high … but sawmills and other producers in the Midwest and back East that I buy from have all expressed problems hiring people.”
“We used to ask for a truck and could get it in two to three days,” he said. “We’ve waited up to three weeks now to have a broker line up a truck.”
Trucking companies are picking and choosing which loads they want to deliver, Rogers said. “If I have a trucking company and have one truck and two potential loads and one is lumber and one is cell phones, I’m going to go with cell phones because it makes you more money.”
With lumber prices and demand what they are, sawmills lack capacity to keep up but there’s no desire to expand or build new mills, Viehmeyer said.
A sawmill in Maine told him they were turning down work but didn’t want to build or expand capacity.
“It would take three to four years to get a new mill built and there’s no guarantee what would happen in the market in three to four years,” Viehmeyer said. “They’d rather pass up the opportunity than take the risk of building too much capacity and be in a bad spot down the road.”
Rogers added they don’t want to make any big capital expenditures in case this turns out to be a bubble in demand.
“In their minds, making a big capital expenditure at the height of a demand cycle is akin to buying a stock when it is at its highest price.”
Pat Ferrier is a senior reporter covering business, health care and growth issues in Northern Colorado. Contact her at firstname.lastname@example.org.