Home builders have become a victim of their own success this fall.
The fast pace of home construction in recent months has helped to push up the wholesale price of plywood and other panel lumber used for siding, roofs and walls in new houses.
As a result, sheets of plywood and oriented strand board are selling in many places for twice what they did six months ago.
"We had the East Coast storms, the building season was stronger than expected at end, the military bought panels for Iraq — it all kind of hit at once," said Mike Dunn, the man in charge of inventory for Dunn Lumber’s retail stores.
At Midway Plywood Inc. in Lynnwood, Ron Miller said he also was surprised at the sudden price increases.
"We haven’t seen prices this high before," he said.
The composite price for panel wood products as of Oct. 3 stood at $555, compared to $249 at this time last year, according to Random Lengths, a wood industry publication in Eugene, Ore. Shawn Church, editor of Random Lengths, called the present prices "astronomical."
"The real key to this whole market is the demand from home builders," Church said, adding that the high demand follows a period when a number of panel wood mills shut down, thus cutting supply.
Housing construction has been on a roll, thanks to low mortgage rates and continued demand for new single-family homes, according to the U.S. Commerce Department. In July, housing starts hit a 17-year high, and that declined only slightly in August. At this pace, the National Association of Home Builders predicts this year will end with nearly 1.8 million housing starts, up 3 percent from last year’s strong performance.
The rumor mill has mentioned the U.S. military’s need for plywood, mostly for use by U.S. troops in Iraq, as a big factor in the price spike. Church said that while the order came at the height of the supply crunch, the military needed only about 24 million board feet — a drop in the bucket.
The high prices get noticed by do-it-yourselfers, but they can really hit the wallets of those who build scores of homes each year.
That includes Zak Parpia, president of Marysville’s Himalaya Homes. While the cost of lumber can make up 20 to 30 percent of the cost of a house, prices on most of the homes he’s built recently were set before the lumber costs went up.
"By and large, we have to weather it," said Parpia, whose company is building in four different subdivisions in northern Snohomish County.
Mike Kinney, a partner with Everett-based Pacific Ridge Homes, said he hasn’t been touched by the rising plywood prices, however. That’s because of lucky timing between his developments this year.
"We locked in material prices six months ago and haven’t started any new homes lately, so we’re not hurt," said Kinney, whose firm has built nearly 200 homes so far in 2003.
While builders and industry analysts have warned that home buyers in some areas could see prices go up because of lumber costs, Kinney said that may not happen here. That’s because home sales in Snohomish County remain strong enough that builders can still price their homes with a comfortable profit margin.
Also, offsetting the high-flying cost of plywood and oriented strand board, prices for average 2-by-4s and other framing wood haven’t risen nearly as fast. In fact, Church said, they’re close to last year’s historically low prices.
"Even though it’s gone up, it was at a 10-year low before. So it’s still below the historic average," he said.
If plywood prices stayed up for a long period, the higher costs would be passed on to home buyers. But there are signs that the price spike may not last much longer.
"They seem to have peaked out the last couple of weeks. There’s a lot of fear from anybody buying inventory now that it’s going to crash," Dunn said.
Kinney agreed, saying he’s trying to wait for the perfect time to order lumber for his upcoming construction projects.
Because construction activity slows across the country as the weather gets colder, the demand will go down, Dunn and Kinney said. Prices will then naturally fall.
"We walked away from a load of plywood yesterday, because it meant we would have plywood that would be way too expensive to sell in December and January," Dunn said last week.
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
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