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What historically high lumber prices mean for Florida home buyers

A crane lifts roof trusses to the top of an apartment building under construction at the Vue at Belleair off US 19. Lumber prices are near historically high levels. [JIM DAMASKE | Times]
Published Jun. 20, 2018

Blame a lack of rail cars in Canada or not enough semi trucks in the United States. Forest fires didn't help. Tariffs played a big role, too.

Even the buoyant economy takes part of the rap for frothy lumber prices, which hit all-time highs last month. The prices retreated in recent weeks, though they remain way above average.

That means that new boat dock will likely cost more, as will overhauling a kitchen or building a wood-framed shed. As for an average-sized new home, lumber will add $9,000 to the cost compared to January 2017, according to a Realtor.com estimate released Tuesday.

"It's definitely affecting our business," said Jeffery Wolf, a St. Petersburg-based general contractor who specializes in custom home construction and high-end renovations. "We have had a significant number of clients who, when we give them the estimate, they say they cannot afford to do that now."

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The bubbling economy and increased home building had already pushed up lumber prices from less than $220 per 1,000 board feet in the fall of 2015 to about $350 last summer. Around then, forest fires began ravaging forests in western Canada, which supplies about a third of U.S. lumber. Prices broke through the $400 level in September, about the time that Hurricane Irma temporarily shuttered sawmills in Florida and Georgia.

In November, they rose even higher as a years-long trade dispute prompted the United States to impose an average import tariff of 21 percent on Canadian lumber.

Transportation woes that worsened over the winter also contributed. Poor weather and competition from the energy sector limited the number of railcars available to move lumber out of the Pacific Northwest.

There also weren't enough semi trucks to fill the void. The shortage is so acute that orders for a common class of semi trucks jumped 75 percent, from 22,886 in February 2017 to more than 40,000 in February of this year. The scarcity of rigs, combined with robust demand, boosted flatbed truck rates to record highs in May, according to DAT Solutions, a research firm that has tracked the prices since 2010.

"The capacity crunch is transforming into a capacity crisis," Don Ake, vice president of commercial vehicles for FTR, which tracks the trucking industry, said in March.

On May 17, lumber prices topped out at $639. That's for a product that had averaged less than $300 since 1998 and had only crossed $400 a handful of times since 1985. Plywood prices also rose, though not as much as lumber.

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Russ Hallenbeck, CEO of St. Petersburg-based Tibbetts Lumber, said the confluence of factors created a "perfect storm" for high lumber prices. He thought the competitive transportation market was likely what pushed them into record territory.

"Every piece of lumber is either delivered by rail car and/or a semi truck," he said. "And right now, times are good all around, so people and business are shipping all kinds of things, not just lumber. That puts pressure on freight rates."

Hallenbeck said lumber prices work in cycles and he expected them to settle down. They've dropped in recent weeks to about $535.

"Lumber prices will fall from where they are now," he predicted. "But the economy keeps moving along; it remains vibrant. So as long as builders keep getting buyers to pay the prices they need, there will be pressure on lumber prices to remain above normal."

A wildcard: hurricanes. If an Irma-like storm slams into the United States again this summer, the demand for lumber to rebuild homes could drive the price back up.

Hurricanes or not, lumber prices already appear to be a drag on home building, especially at the lower price range. Danielle Hale, chief economist for Realtor.com, was encouraged that single-family home starts in the country broke above the 900,000 annualized rate for the fourth time in seven months, though she pointed out that a normal level would be about 1.2 million.

"We are still well short of where single-family starts should be," Hale wrote in a statement Tuesday. "Rising costs for land, labor, and materials are making it difficult to build entry-level and affordable homes."

Wolf, the Tampa Bay area general contractor, said he's better positioned than builders of less expensive homes in that many of his high-end clients can afford the increase. Lumber also doesn't make up as big a slice of the total cost for a high-end job as it can for an entry-level home.

The volatile prices have made it more challenging for Wolf to estimate the price of a potential project. Last year, for instance, suppliers would guarantee lumber prices for 60 days. Now, it's 15 days, Wolf said.

"We are trying to give a client an estimate on a job that is not going to be done for six months," he said, "so we have to work in contingencies and be very clear with them about why. Some get scared off."

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A few clients have downsized their projects to make them fit their budgets or have put them off for a while to see if prices fall. Even if lumber prices keep falling, he said, the recently imposed tariffs on steel will drive up the cost of rebar, metal roofing and other materials.

"When tariffs on steel were announced, we immediately had notices from companies saying they were going to increase prices by 25 percent," he said. "I think this tariff climate, both on lumber and steel, is going to have a fairly major impact on our industry."

Contact Graham Brink at gbrink@tampabay.com. Follow @GrahamBrink.

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