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'It's been crazy:' Pandemic has sent lumber prices soaring, causing home construction costs to rise amid strong demand

'It's been crazy:' Pandemic has sent lumber prices soaring, causing home construction costs to rise amid strong demand

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From its large lumberyard in eastern Henrico County, the Ruffin & Payne Lumber Co. ships out building products to construction projects around the Richmond region.

With 40 years of experience in the lumber industry, company President George E. Haw says he hasn’t experienced anything quite like what has happened this year with lumber prices, as the COVID-19 pandemic has played havoc with them almost all of 2020.

“It’s been crazy,” Haw said. “I’ve been around a long time, and I have never seen a lumber market behave like this in 40 years.”

On a recent ride around the lumber yard, his son, George W. Haw, the company’s vice president and director of purchasing, pointed out some of the varieties of lumber stacked around the operation and how prices have been affected. That includes some of the most common types of lumber used in home construction — southern yellow pine, which is often used in house framing, and spruce fir pine.

For instance, a 2x4x12 piece of yellow pine that sold for about $4.20 a year ago jumped to about $9.50 by this fall. Prices for 16-foot deckboard, typically used in building home decks, jumped from about $18 a year ago to around $34 this fall before it dropped off that high, though prices are still well above a year ago.

Most of the price increases, the Haws said, were due to COVID-19 closures or production curtailments at the thousands of lumber mills around the country that supply the industry.

“The mills — and everyone — were under the wrong assumption that demand would go down a fair amount given all the lockdowns,” George W. Haw said. “Lumber mills started to do a lot of curtailments to prepare for less demand. They cut down on shifts. What they found out soon after was with everyone being locked down in their houses and sitting around, the repair and remodel industry just skyrocketed.”

Higher lumber costs have rippled into the home construction market.

The National Association of Home Builders, a trade organization, reported that lumber prices per thousand board feet more than doubled from less than $400 in January to more than $900 in September, based on composite data collected by Random Lengths, an industry publication. Prices dropped off in October but remain higher than a year ago.

“On the supply side, mills started curtailing operations as the pandemic spread throughout the country and lockdown orders were issued, and they were slow to come back online,” said David Logan, director of tax and trade policy analysis for the NAHB.

“On the demand side, we saw this surge in do-it-yourself activity, and demand from big-box retailers for lumber for at-home projects and small contracted projects,” he said. “Then the housing market bounced back stronger and faster than almost anyone expected. All of that developed the perfect storm for this historic run in lumber prices.”

The home builders group said rising lumber costs this year have added about $16,000 to the average price of a single-family home.

That increase is consistent with what builders in the Richmond region have seen, said Danna Markland, chief executive officer of the Home Building Association of Richmond.

Yet demand for new homes remains strong, and demand is one factor that helped drive up costs for lumber.

“Confidence is still high in sales and demand,” Markland said. “Buyers will see those price increases, and that has kept some buyers out of the market.”

Single-family home building has remained a bright spot in the economy during the economic downturn caused by COVID-19. U.S. construction spending jumped 1.3% in October, largely on the strength of single-family home building, the U.S. Commerce Department reported recently.

Single-family home construction rose 5.6% in October, contributing to a 2.9% increase in total private residential construction for the month.

The actual cost that a home buyer might see as a result of lumber price increases could vary greatly depending on how much lumber is used in a particular home construction, said Mitchell Bode, executive vice president of Boone Homes, a custom home builder in the Richmond area, and president of the Home Building Association of Richmond.

“I would say that some builders are passing on as much [of the cost] as they can,” Bode said. “I don’t think they are passing on the full cost. It is having a big impact on the building industry in general.”

Bode said home builders have passed along costs to home buyers from as little as nothing to as much as $35,000 to account for lumber price increases.

Yet the market for new homes still remains strong, he said.

“We have seen some hesitation with buyers,” because of the cost increase, he said. “But we are still projected to have the best sales year for Boone since 2007.”

Corey Connors, executive director of the Virginia Forestry Association, said the state was fortunate that most every business in the forestry supply chain was deemed “essential” and has continued to operate during the pandemic.

“With some quick action and adaptation, our member manufacturers were able to continue operating under enhanced safety protocols,” Connors said.

Demand dropped in April amidst all of the uncertainty over COVID-19, then started to rebound throughout the spring and summer with solid housing starts and a large increase in home improvement projects.

“With respect to sawmill closures, it’s important to distinguish between hardwood and softwood mills,” Connors said. “Market conditions for hardwood sawmills were not ideal pre-COVID for a number of reasons. In some cases, the pandemic was the final straw that broke the camel’s back for those closing permanently this year.”

“For softwood mills, the market peaked over the summer based on housing starts and home renovation projects as suggested by builders and lumber yards,” he said. “But since mid-September, softwood prices began a return to more historical norms.”

While the price of lumber has come down some since early in the fall, the Haws from Ruffin & Payne say they foresee higher prices being a factor in building costs for a good while to come.

“Obviously, we are still dealing with COVID, and we are going to continue dealing with it for however long,” George W. Haw said. “I think next year, there is still going to be a pretty sizable gap between the availability and the demand, but the mills will be producing more than they were, so there is not going to be as large of a gap between supply and demand, but it is still going to be there.”

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