Thursday, May 20, 2021

Will Falling Lumber Prices Reverse Modular Factory Surcharges?

Rising lumber prices make the news every time they go up but what happens when they go down more than $300 in less than two weeks? 

Just as modular home factories were preparing to add another daily surcharge, lumber prices actually dropped from $1,658 on May 7th to $1,327 on May 19th. 

I haven't seen anyone smiling or dancing in the streets, have you? 

Here's an interesting observation. How many factories actually sent out price reductions to their builders? As far as I can tell, very few. What are they waiting for?

If they were so quick to send out surcharges, what's holding them back from sending out price reductions?

Fear and trepidation have caught the entire modular construction industry in a Catch 22. Do they send out price reductions for homes that won't be put on the production line 6-8 months from now knowing that this could be a very short-lived turn of events or do they sit back hoping that the last few days drop in price will continue?

Not the only factor

And is lumber the only building commodity that factory buyers are watching before adding another surcharge? Absolutely not! Plywoods, OSB, shingles, drywall are rumored to be going up in price soon. And let's not forget about all the related building materials, plumbing and other components needed to build a module inside a factory being in short supply. 

If a factory has been forced to increase hourly wages to attract new production line workers, does that factor into another surcharge? Absolutely!

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I was talking to a remodeler at Lowe's yesterday who isn't worrying about rising prices because he switched completely to cost and labor pricing almost 8 months ago and people are still lining up at his doorstep to get work done on their homes.

Once he did that, he said he's sleeping better and making a profit. Gotta Luv those remodelers!

As for modular home builders weary of continually receiving new surcharges from your factory, this $300+ price drop in lumber pricing will have little effect on your factory's ability to lower their pricing. At best, it will keep those factories from sending out any new surcharges for a while and that alone should be good news.

Take the little victories where you can.


Gary Fleisher is the Managing Director and contributor to the Modcoach Network and its affiliated blogs. Email at modcoach@gmail.com.

5 comments:

  1. Don't confuse the futures market (the prices you're quoting) with the actual cash price on a daily basis. Cash prices, and locked in contracts have not retreated.

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  2. Coach, the drop in lumber pricing you referred to in your article was in Lumber Futures. This is not the same as what the factories are actually paying for the lumber they are using. Typically there is a lag in future prices to actual prices and you are right about other lumber items continuing to rise. OSB, Plywood, trusses, and LVL are all still continuing to rise in cost. I am sure that this is also part of the what is factored into a factories lumber surcharge.

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  3. I should have mentioned they are lumber futures. The point of the article is still valid. Dropping lumber prices by themselves may not be enough for many factories to lower their sq ft pricing.

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  4. Coach...even if our actual "lumber" pricing did decline, we are now receiving significant price increases for non-commodity products (windows, doors, water heaters, and everything else we use to build our houses). This is why our material surcharges are continuing to increase.

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  5. Just like gasoline - "Up like a rocket, down like a glacier ..."

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