3-1-18 10:14 AM EST | Email Article
By Benjamin Parkin 

A lumber shortage has pushed prices to record highs as builders stock up for what is expected to be one of the busiest construction seasons in years.

Builders say the higher lumber costs are making homes more expensive. Lumber prices started rising last year after fires destroyed prime forests and a trade dispute between the U.S. and Canada restricted supplies. Now a shortage of railcars and trucks is forcing builders to pay even more.

"We are in a lumber supply crisis," said Stinson Dean, a broker in Kansas City, Mo., who ships wood from sawmills to lumber yards, in a note to clients. "None of us have experienced a market like this."

Marc Towne of Classic Homes, which builds midrange to high-end houses in Colorado Springs, Colo., said he is spending $8,500 more on lumber for a typical home than a year ago, an increase of almost 40%. The company's passing on about half the cost to buyers for now while it waits to see if lumber prices fall.

"We hate to give large increases all at once because it can freeze your market," Mr. Towne said. High lumber costs added about $3,000 to the price of a home he purchased himself in Castle Rock, Colo., late last year.

Prices are rising as lumber yards try to stock up ahead of what looks likely to be a busy building season this spring. A strong economy and tight supply of houses are heating up the home-building market. The number of new units under construction in the U.S. rose almost 10% in January, the Commerce Department said, as strong demand kept builders working through the winter. Permits for new homes, a sign of anticipated construction, also rose.

Material prices now rival labor shortages as builders' main concerns, a National Association of Home Builders survey showed in January. Prices for common building varieties like spruce and southern pine are at or near records, according to price-tracking publication Random Lengths. March-dated lumber futures at the Chicago Mercantile Exchange hit a record of $532.60 per 1,000 board feet last week after climbing more than 50% in 14 months.

That run-up began with a trade dispute between the U.S. and Canada, which provides about a third of U.S. timber, leaving many dealers hesitant to restock at elevated prices. The Trump administration eventually instituted tariffs of 20% or more on Canadian sawmills.

Problems mounted. The worst wildfires on record hit Canada's Pacific coast. Hurricane Irma temporarily closed mills in the forests of Florida and Georgia. And then came a shortage of railcars and trucks to transport timber from forests in places like the Pacific Northwest. Rates for flatbed trucks rose 24% in January from a year earlier, according to DAT Solutions LLC.

Forestry company Canfor Corp. said lumber shipments fell almost 10% in the final quarter of 2017, partly due to bad weather in western Canada. The transportation bottlenecks have caused weeks of delays, frustrating customers already paying record prices.

"People are screaming for their wood," said Russell Taylor, managing director for Canada at analysis firm Forest Economic Advisors LLC.

Franklin Building Supply in Boise, Idaho, ran out of a type of lumber used in walls, flooring and roofs one day in February for the first time in years. Rick Lierz, who runs the supplier, said one shipment of wood he was waiting for was stuck on a railcar just 20 miles away.

His employees drove to local Home Depot Inc. stores to buy the lumber needed to fill orders to local builders due that day. Home Depot recently told investors that rising lumber sales and prices contributed to higher earnings in the fourth quarter of 2017.

"The cardinal rule when you're a supplier is you don't run out of what you need to supply," Mr. Lierz said. "It's like an ice cream shop running out of chocolate."

--Bob Tita contributed to this article.

Write to Benjamin Parkin at Benjamin.Parkin@wsj.com


(END) Dow Jones Newswires

March 01, 2018 10:14 ET (15:14 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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