Saturday, August 29, 2020

Skyrocketing Lumber Prices Just One Factor Hurting Builders

There has been an 80% increase in lumber prices since the Coronavirus hit our country in March. That is an $8,000 cost increase for a 2,000 sq ft home.


Modular home factories are especially sensitive to lumber and other building material pricing since they tend to quote houses and commercial work out sometimes as long as 6 months. 


Many factories have been sending out almost weekly surcharges to builders and developers with recent ones being higher than ever before. 


Lumber mills, at least the ones that have reopened, are running at capacity but it isn’t enough to keep the DIY crowd, site builders and off-site factories supplied.

You would think rising costs would keep new home buyers from building but with interest rates at all-time lows and the exodus of new home buyers leaving cities, the demand for new housing is increasing.


With a skilled labor shortage, the safety and health precautions instituted for the pandemic and the shortage of building materials from China, many modular factories are being forced to rethink how their production line should operate.


Do they put a hold on a module for the line until everything for it has arrived or do they simply slow down the line or maybe they should send every module through the line and complete them in the yard when product arrives.


No easy answer to that when you consider the hard costs associated with running a modular production line.


Even with all these problems, sales continue to grow for factories with many scheduling their production out 6 months. That may seem like an exorbitant amount of lead time but honestly, site builders are in the same boat with many of them not able to even quote houses for next year.


No matter what happens in the construction industry, I would rather be a modular builder than either a site or panel builder. Not having to search for electricians, plumbers, drywallers and finish carpenters makes going modular an easy choice.

5 comments:

  1. Thanks Gary Fleisher. You continue to provide insights to the construction / modular industry.

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  2. Record low interest rates are offsetting this pricing increase in regards to housing demand.

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  3. Gary Fleisher we have about $200M of lumber purchases per annum - low interest means nothing other than the increase costs slightly less but overall the impacts are massive

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  4. I'm not saying the total cost for the developer or builder isn't higher. I'm saying the housing demand has and will remain high as the end consumer is obsessed with a monthly payment number. Banks push a debt to equity ratio for qualifying owners or the final customer. So a $8000 additional cost on a 2000 square ft home is less than a 3% total cost per house and will be nothing more than a temporary pass through cost that has not affected housing demand.

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  5. Grant Leavitt, don't forget the modular factory will add a 20% profit to that and the builder or developer will add another 20% on the factory's new cost. That makes the increased cost to the buyer an additional $12,500, not $8,000.

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