In his 11 years at Tahoe City ACE Hardware & Lumber, General Manager Michael Morrissey has never seen the price of lumber go up so fast, so high, and so often. Since the start of the pandemic last March, prices have been increasing twice a week, every week, for an entire year. Two-by-sixes are up 300%. Structural panels like plywood 270%, composite lumber 210%. On average, all lumber has surged to 180% from last March.
“It’s insane,” Morrissey said. “I haven’t seen [prices] decrease, not once, for 14 months … These prices are historic. Prices never even got close to this in 2004 to 2007, the last construction boom.”
“Insanity” is a word used by almost all the lumber suppliers and contractors whom Moonshine Ink interviewed to describe the current market. Due to a combination of factors that have impacted supply and demand — mills shutting down at the start of the pandemic and a booming real estate and construction market, among others — lumber prices have been skyrocketing. With no end in sight, and with an insatiable demand for new building in Tahoe/Truckee, suppliers and contractors are concerned that a tipping point could be reached where projects become too expensive to build, or supplies become too scarce, and building is either put on hold or scrapped all together.
The root of climbing lumber costs can be traced back to the beginning of the pandemic. As with almost all industries, when Covid hit, mills — the majority of which are in the Pacific Northwest and Canada — either shut down or cut shifts in half and went to 50% capacity. When preparing to ramp back up after a few months, they made a conservative gamble that would prove to be detrimental — they predicted that the construction market would slow down for the rest of 2020 due to so much uncertainty in the world, and decided to remain at reduced capacity.
“Well, who would have known that things actually went in the opposite direction and things intensified on the demand side,” said Dave Rhoden, sales manager for Grass Valley-based Caseywood, noting that demand for lumber is at a 20-year high. “A lot of projects were already budgeted to be built, and the do-it-yourself market stepped up tremendously. Supply went to a critical low.”
Add to that historically low interest rates, a local real estate market on fire as a result of people fleeing cities for smaller towns, and stimulus money pouring in, and you get a situation ripe for mounting costs.
“It was a perfect storm for lumber prices to spike,” Rhoden said. “These prices have soared far beyond what anyone could have imagined.”
Andrew Cross, president and CEO of Truckee-Tahoe Lumber Company, which incorporated in 1931, agreed these are unprecedented times. He says that lumber rates have been going up 5% to 10% every week.
“I have never seen anything like this and hope never to again,” Cross shared, “and I have been doing the buying for 10 to 15 years.”
While most suppliers have reduced their price guarantee from 90 to 30 days (although some contractors say they are experiencing only three- to five-day price guarantees), TTL is trying to earn goodwill by committing to their normal 90-day price lock. However, this puts them in a difficult position with cash flow.
“We are trying really hard not to lose money,” Cross said. “Our inventory doubled in cost over the last 18 months, so we had to come up with enough cash to cover inventory and accounts receivable. We are struggling to find enough cash to operate the business.”
Morrissey at ACE Hardware is going through the same thing.
“I sell all the lumber, and in 30 days it goes up 30%,” he said. “I have to borrow money to keep fueling the fire. So much money is being spent reinvesting into new product that gets more expensive every day.”
From the contractors’ perspective, rising lumber costs make many aspects of the job challenging. They not only risk losing money on jobs bid months ago, but also angering clients when they tell them that costs have gone up.
“For some of the projects bid last year, we are going back to clients and saying we don’t have a choice here, we can’t do your project and go out of business,” said Dan Fraiman, founder and CEO of Daniel Fraiman Construction in Truckee. “It’s very hard to manage expectations, keep clients happy, and maintain the integrity and transparency we want to have and stay in business. We are a for-profit business, not a home for wayward boys.”
Fraiman, who notes that the commodity price of lumber is four times what it was last year, is now bidding projects 15% higher than he did in 2020.
“My biggest concern is that we find ourselves in an inflationary market; that prices go up so high people will stop doing their projects,” he said. “I think it’s already happening.”
Brian McEneaney, owner of McEneaney Construction based in Truckee, hasn’t had any clients cancel projects, but increasing lumber costs are impacting him personally.
“I don’t think the construction industry is going to be hit, but I can’t justify doing an addition onto my house, and building a family home for myself is way out of reach,” he said. “I am in a different economic bracket than the people I work for. The upper market is cruising right now. As long as I can supply the material for the job, it’s going to keep going.”
It’s not only lumber prices that are rising but all materials associated with construction. PVC pipe has increased 400%, and drywall costs have doubled, forcing manufacturers to put distributors on allotment (similar to rationing), according to McEneaney. Morrissey bemoans the fact that even engineered lumber products, made from sawmill waste, are expected to increase 20% in May, if you can even get any. According to Fraiman, Trus Joist I (known as TJI joists), a type of engineered wood truss used in flooring, are impossible to get a hold of.
“The concern is really availability,” said Kellie Cutler, executive director of the Contractors Association of Truckee Tahoe. “It could slow projects down if materials are on extensive delays, and impact the project timeline.”
CATT’s own community project, a park in downtown Truckee between Church and Jibboom streets, is being affected. Over the past two years, project costs have gone up $200,000, which the association is offsetting through grants and fundraising.
Lumber mills are so behind from shutdowns last spring, that with ever-increasing demand, they may never catch up. If there has ever been a time for mills to increase supply, it’s now, as loggers return to work after winter.
“The mills need more logs on deck, but loggers have not been able to get more logs because we are coming out of winter, plus we had a dry winter which kept the builders building,” thereby reducing an already limited supply, Rhoden said.
This is where the old adage of “what goes up, must come down” applies. The question is not if lumber prices will start falling, but when, and what the consequences will be. Many are concerned there could be another recession.
“I think a lot of projects are going to be put on hold this summer, but mostly in Reno,” Cross said. “I am worried about what the future will hold in terms of another downturn like in 2007.”
Morrissey agrees, fearing the construction market could eventually implode.
“The only consequence is if [the lumber market] crashes,” Morrissey said. “If we keep riding this wave, if the wave dumps down like an elevator, we are going to be screwed. Suppliers won’t get their money, contractors will get undercut by the next guy coming in, and I won’t get my return on my investment because we own a lot of expensive material.”