Lumber prices soar, threatening Bay Area home projectsMay 17, 2021Material prices have increase by nearly five-fold during COVID-19
By LOUIS HANSEN | firstname.lastname@example.org | Bay Area News Group
PUBLISHED: May 17, 2021
When the COVID-19 pandemic first hit, Bay Area construction big and small mostly ground to a halt.
But the construction industry, deemed essential, quickly ramped back up as home-bound families discovered new projects to freshen up their houses and yards.
Now, surging demand and a pandemic-choked supply have driven lumber prices up nearly five-fold in the last year to historic highs, adding as much as $40,000 to the cost of a new home, stifling some apartment projects and making shoppers scratch their heads at soaring costs in home improvement stores.
“Building housing in the Bay Area is like walking a tightrope,” said Todd Regonini, chief development officer for San Mateo-based Sares Regis Group. Rising labor and material prices — including lumber and a wide range of other products — have added another challenge to construction, he said. “There’s a number of projects sitting on the sidelines waiting.”
The lumber shortages have pushed up home renovation costs, and also stalled some multifamily construction, Bay Area developers say. And building new decks, kitchens or built-in cabinets may cost more.
Rising material costs play a lesser role in high home prices in the Bay Area, where land is typically the biggest expense and relatively few new projects are being permitted. New construction in the region fell 26% during the pandemic, partly driven by labor shortages and slowdowns in financing and government approvals.
Prices for new homes across the region reached a median of $820,000 in March, cheaper than median prices for existing homes in part because most of the new inventory has been spread through lower-cost construction in outer suburbs.
Despite the surging cost, wood remains one of the basic ingredients for home building and renovating.
Prices for a standard 1,000 board feet of lumber jumped from $347 to $1,645 between May 2020 and 2021, according to Wells Fargo analysts.
“The surge in lumber prices is truly historic and marks the fastest rise since the housing boom that followed World War II,” the bank’s analysts wrote this month. “Dwindling supplies of lumber have caused delays, boosted costs and added an extra level of uncertainty to budgeting for project costs.”
The supply shortage has been caused by a number of factors, including pandemic slowdowns in manufacturing plants and a lack of capacity at sawmills, said Wells Fargo senior economist Mark Vitner.
Vitner estimated growing lumber costs have added $40,000 to the price of a new home. He expects prices will continue to rise through the summer, and only begin to recede late in 2021.
“For a lot of homebuilders, although they have incredibly strong demand, it’s difficult,” he said. Many are pulling back, concerned that material prices are rising so fast they cannot accurately price properties too far in advance.
Jeff Reimer, an economics professor at Oregon State University, said production has not been able to ramp back up to meet surging demand for home materials after the closures of many sawmills following the 2008 recession. “As long as homebuilders can pass along the inflated lumber prices to homebuyers, this will continue,” Reimer said.
Bay Area home building has lagged for decades, but the historic growth of lumber prices has added an extra dilemma.
Regonini said Sares Regis has adjusted development plans to account for the higher material costs, trying to build smaller or otherwise conserve building materials. There’s no quick substitute for framing lumber, although some light steel beams and heavy timber are gaining popularity, he said. It takes time to develop and integrate new materials into construction plans, he said.
The rise in remote work has driven business to residential contractors and home improvement stores.
David Thom, vice president of family-owned Bruce Bauer Lumber & Supply in Mountain View, said customers have been busy buying supplies for home additions, fences and small interior projects. They frequently ask about the rising prices, and Thom explains how the market has changed.
The price of a standard, 8-by-4 foot piece of CDX plywood has jumped from about $20 a sheet to as much as $100 in the past year. Standard pine 2-by-4s have roughly doubled in price.
Thom says it’s unfortunate the health crisis has spurred business, but he’s trying to keep up with increased customer demand and tight supply. The lumber yard, founded in 1938 by Thom’s grandfather, Bruce Bauer, has been buying from some of the same Northern California suppliers and mills for generations. Thom has never seen costs escalate this dramatically. “I don’t like raising prices,” he said.
He’s been able to keep a regular stock of redwood, pine 2-by-4s and birch plywood despite shortages. “I planned ahead.”
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