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Construction costs remain in flux as timber prices cool

The demand for new housing is strong in the Conroe and Montgomery area. (Eva Vigh / Community Impact Zeitung)

When the pandemic hit the real estate market, one commodity made the headlines in particular: wood.

After rocketing historic highs in April, timber prices began to decline in June, although they are still above pre-pandemic levels, according to Trading Economics, which provides historical data and forecasts for various commodity prices. Local developers and builders in the Conroe and Montgomery area said predicting project costs and schedules were next to impossible.

When the pandemic broke out, sawmills like Steely Lumber Co., located north of Willis in Huntsville, initially cut hours and cut production, manager Chris Demilliano said. But demand for wood actually rose as distribution centers like Home Depot and Lowes were viewed as essential businesses and Americans forced to work from home turned to home remodeling and renovation, he said.

According to a study by the Texas A&M Forest Service, a scarce supply and growing demand caused the price of wood to skyrocket 365% from April 2020 to April 2021. Wood generally makes up 14-18% of the cost of a home and is the single largest item that affects the bottom line, Demilliano said.

On May 6, timber prices peaked at just under $ 1,700 per 1,000 board feet before falling to around $ 800 per 1,000 board feet in late June, according to Trading Economics.

“The prices have come a long way; almost half of what we visited has fallen behind, ”said Demilliano at the end of June. “It was kind of a temporary rash.”

Given the unstable prices, contractors cannot guarantee their customers a fixed price, said Santiago Lopez, owner of the SLT Group construction company in Conroe.

“People just don’t know how [the price of] Material goes up and down, ”he said. “If I go to your house and you built a small $ 4,000 deck a year or two ago and I come up to you and say it’ll be $ 7,000 just a year later, you’ll think I’m trying to rip you off. “

In addition to wood, other products such as appliances, paint and copper are also in short supply as manufacturing facilities close during the pandemic, said Mike Dishberger, CEO of Houston-based Sandcastle Homes and past president of the Greater Houston Builders Association.

Rising material costs have increased the average cost of building a single family home across the country by $ 46,000 since April 2020, according to the National Association of Home Builders.

Local developers predict the scarcity and higher prices could extend into 2022 before finally stabilizing.

“Given the futures markets, there are already signs that lumber will decline [in cost] by the end of the year, but I don’t think we’ll ever go back to where it was before, ”Dishberger said in early June.

Out of the woods

After the trees have been felled, the wood is taken to sawmills to be cut and made into sawn timber. This wood is then sold to supply stores and lumber warehouses such as 84 Lumber, located in Conroe and McCoy’s Building Supply, located in Montgomery. These shops then sell to home builders.

During the 2008-09 property crash, many sawmills in the south were unable to obtain loans from banks and as a result were closed or consolidated, Demilliano said. There are few large sawmills left in Texas today, and when the pandemic broke out in March, the already small supply of sawmills saw further closures or slowed production. The winter storm in February further dampened the already sluggish supply, according to the Texas A&M Forest Service.

“There are only a limited number of plywood manufacturers that factories just can’t turn on and off,” Dishberger said. “Once they shut down, they take a long time to get up and running again. And producing a new lumber factory is a two-year process. You can’t build a mill and start producing wood in six months. “

Industrial workers assume that wood prices could increase and remain unstable through 2022. If costs continue to rise, the Texas A&M Forest Service study predicts that low-cost solutions like 3D-printed houses could replace the more expensive timber construction in the long run.

But the increased cost of wood is only one factor in the cost of construction, and Demilliano said the price hike may have been necessary for the industry long ago. Until recently, wood prices have not changed much in the past 28 years, although the cost of other products such as concrete, steel, and labor have increased.

And while the price of wood exploded initially, the price of wood – wood before it is made into sawn timber – continued to fall at the start of the pandemic. Factors for the falling wood prices are the long ripening time of the trees, too large a supply and too many long-term contracts with large companies, so that the market cannot react so quickly to changes in demand.

According to the Texas A&M Forest Service, the price of wood has steadily declined since the mid-1990s, from a high of $ 445 per 1,000 board feet in 1997 to $ 202 per 1,000 board feet in 2020.

“The timber landowner paid the highest price,” wrote Demilliano in an email to a house builder in October. “Think of the landowner in 1990 who expected to turn his 30 year old wood to 60-70 years old. … we as an industry need [the price of timber] higher so that people can continue to keep some land for wood production. “

Knock on wood

Builders feel the higher material costs that are passed on to consumers.

According to Lopez, the fluctuating cost makes it difficult to set a price for customers. Lopez is primarily focused on remodeling and renovating homes across Montgomery County, including the April Sound and Walden neighborhood, although he has built some new builds.

“I did a job for a guy in Magnolia; … the material was $ 40,000, “he said. “Ten days later I’m going to Home Depot; it was $ 4,000 more. You told me that you have to check the material every seven days. “

Fluctuating costs can make sales difficult, Dishberger said.

“The challenge is that you can write your contract and have an escalation clause, but nobody likes that,” he said. “Nobody wants to buy a house with an escalation clause that says, ‘When the price of wood reaches a certain point, you have to pay more for your house.'”

Also in Conroe, Jimmie Smith, manager of PREMIER HOMES, said he was trying to work around the problem. PREMIER has three product lines: Legacy Homes, which are manufactured or factory-built homes; Franklin Structures Homes, which are prefabricated houses; and Conroe Tiny House Outlet.

“… we have to be upfront and tell people we don’t control the cost of materials, but we’re trying to build a cushion … that we’re covered up to a certain price with no increase,” said Smith.

Fluctuating prices mean construction time extensions and delayed projects, said Dishberger. At PREMIER HOMES, project completion time was four to six weeks prior to the pandemic but is now three to four months, Smith said.

“… builders say: ‘We won’t even sell the houses early. We’ll at least have the house framed and some other things in the house, ”said Dishberger. “A lot of the expensive stuff will be done first … and then they’ll list their houses and decide what to get for them.”

Demilliano said he believes that much of the future cost of other materials will depend on the price of wood.

“I think wood will be a leading indicator if we get out of the pandemic,” he said.

Danica Lloyd contributed to this report.

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