Glut of Lumber Shaves Down Prices for Consumers

With lumber prices at their lowest levels in five years, homeowners who have been waiting to build shelves for the garage or add on a playroom should start those projects now before prices begin their inevitable climb, which could begin early next year, analysts say.

A general slowing in the building boom last quarter, coupled with a steep drop in lumber suppliers’ prices, created a glut of wood products in many of the nation’s home-improvement stores, creating some excellent bargains for homeowners.

In Southern California, the best buys can be found in rough construction lumber, wood for framing, plywood, shelving and gypsum products, such as wallboard, according to a number of home-improvement store spokesmen. But prices for lumber used for decks, such as redwood, remain unchanged or are higher than last year.

“Right now is the best time since the mid-’90s for most lumber purchases,” said Ward Walters, a longtime salesman at Terry Lumber in Los Angeles. “We’re still in a situation where there’s more supply than demand, but we’re starting to use up the surplus. Prices will begin to stabilize.”

Lumber prices are down 11% nationally from September 1999, and construction materials overall are down 2.4% from a year ago, according to Engineering News Record, a construction trade publication. Some regional stores report as much as a 30% drop in lumber prices over the same period last year.

Historically, when suppliers’ prices tumble, retail prices fall also, said Bob Burton, Home Depot’s vice president of investor relations. Because competition is fierce among home-improvement chains, if one store lowers its prices, the other stores in the region typically follow suit.

While tumbling lumber prices translate to savings for contractors and home-improvement enthusiasts, the news isn’t as good for the retail stores themselves. Raul Rodriguez, vice president of operations for Lowe’s Home Improvement Warehouse, said that the chain stores now have to sell more materials to keep pace with last year’s sales.

“If we sold lumber for construction of 200,000 buildings last year, for example, this year we’d have to sell enough [lumber] for 230,000 buildings to equal what we did last year,” Rodriquez said.

Home Depot stock is down about 49% since it hit a yearly high March 29. Lowe’s, the second-largest U.S. home-improvement chain, behind Home Depot, has announced that its third-quarter forecasts will be off, due to lower lumber prices and integration of the Eagle Hardware and Garden Inc. stores.

Analysts cite several reasons for the drop in lumber prices. First and foremost, lumber mills are producing more wood than demand dictates. About 70% of lumber demand comes from new-home construction and remodeling. The latest U.S. Commerce Department data show that sales of single-family homes dropped for the seventh straight month.

Michael Carliner, an economist with the National Assn. of Home Builders, said the strong U.S. dollar has made Canadian lumber cheaper for suppliers here. Also, lumber producers, who invested huge capital in new equipment to respond to the increase in lumber demand, do not want to slow production, even as the demand for wood has diminished.

“Lumber prices are volatile, and the changes really are a mystery,” Carliner said. “It’s amazing that what takes 40 years to produce, changes day to day.” He added that the lumber futures market is indicating a 12% hike in lumber delivery costs between November and next March.

Regardless of the ups and downs of material costs, remodeling is in the midst of a boom nationally, experts say. About $13 billion in projects were completed last year, with remodeling expenditures expected to rise by 12% in the final quarter of this year, according to recent Census Bureau data.

Although construction costs were up 5% from September last year, according to the Construction Industry Research Board, contractors’ prices have remained relatively stable, enabling them to pass some savings on to homeowners, contractors say.

Bob Rhody, owner of Rhody Construction in La Canada-Flintridge, said he is able to make more money while keeping his prices stable because materials’ costs have seen a steady decline in the last three years.

“I get constant calls from suppliers saying they’ll beat anybody’s prices,” Rhody said. “I haven’t raised my prices since 1995. Lower prices have allowed me to do that.”