Lumber Cost Seen as Peril to Builders

Lumber prices in the United States have skyrocketed in recent weeks and real estate experts worry that the increase could drive some California home builders out of business.

Rising worldwide demand and dwindling supplies, caused in part by logging cutbacks, are blamed for the price rise. The wholesale cost of lumber has gone up 25% in the last two weeks alone.

Lumber prices are expected to continue to rise this year because of growing concern that supplies will fall short for the 1993 building season, industry officials said.

“Supplies are a real problem,” said Bud Merrill, an analyst with Shearson Lehman Brothers in Eugene, Ore. “I don’t see anyone coming up with the wood and I don’t see any way to replenish the supplies.”

Stringent environmental regulations aimed at preserving endangered species have contributed to the supply shortage. Government mandates have limited logging activity in the Pacific Northwest for the past two years.

Rick Peters, director of operations for The Fieldstone Co. in Newport Beach, said there are other reasons lumber prices are increasing at such a rapid rate in California.

“Much of the lumber in the Northwest is being shipped outside the California market to places in the United States” where the housing market is much stronger, he said.

In addition, there is growing demand for U.S. lumber in other countries, particularly Japan, and that has also contributed to the price rise, Peters said.

Winston Elton of Goodkin Real Estate Consulting in San Diego said lumber costs for companies that build homes in the $200,000 range have gone up $7,000 in the past year. Most operate on a profit margin of $10,000, he said.

“If you stick a builder with another $7,000 in lumber costs, how much of that do you realistically think he can pass along to consumers in today’s tough market?” Elton asked.

As a result, Elton believes recent price increases could push many home builders out of business.

“This is going to hit all home builders,” he said, “but the smaller builders may end up going under. For the larger builders, it will mean more restructuring.”