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Timber! Thank the Housing ‘Slump’ for Lower Lumber Prices; Other Materials Don’t Budge

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By Amy Hoak

RISMEDIA, July 23, 2007—(MarketWatch)—Those thinking about building a deck this summer, or another project that requires large quantities of wood, might be able to do it less expensively than they would have last year — if, that is, they are doing the work and not hiring a contractor. But don’t expect the savings to be huge, home-improvement experts say.

Prices on lumber have fallen in recent months, the result of a struggling home-building industry that has put the brakes on new construction. Lumber, though, is about the only building material that has dropped substantially as a result of housing-market conditions.

And although the housing slump has also freed up some contractors so that the wait for remodeling work has eased, labor costs have not abated, making a do-it-yourself deck the lone way homeowners can capitalize on the downturn.

The reduction in lumber cost could help a do-it-yourselfer shave maybe 10% off the cost of a deck this year over last, said Jason Cameron, who hosts the home-improvement shows “Man Caves” and “Desperate Landscapes” on the DIY Network.

Ten percent might be on the high side, said Glenn Roberts, senior merchant over lumber for Home Depot, but a couple of months ago that savings might have been possible. Lumber prices trended down in 2006 and prices flattened at the beginning of 2007, he said. Now, prices are trending up a bit, although the increase could be seasonal.

“We always see it (lumber) up in the spring and summer,” agreed Bernard M. Markstein III, staff vice president of forecasting and analysis at the National Association of Home Builders. But, he added, with housing still weak, lumber “is not going back to $400 (per 1,000 board feet) any time soon.”

That’s why — even if lumber has already touched its low — it still might not be a bad idea to complete that deck project now rather than later, Markstein said. Until housing construction rebounds, it’s likely there will still beat least some savings to be had.

“A year from now, we’ll probably see prices up,” he said.

According to the Producer Price Index, softwood lumber was down 10.4% in June compared with June 2006. Hardwood lumber was down 1.4%. Framing lumber prices hit $474 per 1,000 board feet on Aug. 13, 2004, according to Random Lengths, which tracks lumber prices. On July 13 of this year, the cost was $306.

A few cost caveats

Despite the recent drop in lumber prices, consumers won’t realize huge savings due to offsetting factors such as transportation costs, some say. The increase in fuel price has been impacting businesses just as it has car-driving consumers for the past few years, Roberts said.

Further, lumber mills will slow down production when demand isn’t as strong, he added.

“Mills are riding high if housing is strong,” Roberts said. If it isn’t, adjustments have to be made to the supply side as demand decreases, thus stabilizing the price.

Prices also will depend on the wood variety, said Shawn Church, editor of Random Lengths. For example, cedar hasn’t experienced much of a drop at all due to tightness in supply and, in fact, that type of wood has increased in price lately.

While the cost of plywood has gone down from peak levels of 2004 and 2005, the material has been “more resilient than other commodities because of the retreat of offshore suppliers from the U.S. market,” Church said. Plywood was 4.2% higher in June than it was June of 2006, according to PPI statistics.

But for many common lumber types, “it’s still a buyer’s market,” Roberts said.

Pressure-treated southern pine (2-by-6, 12-foot length) peaked at $508 per 1,000 board feet in March 2006, according to Random Lengths. For this July (to date), the price was $439. Between January and May of this year, the cost was below $400.

Other materials

Another product firmly associated with home building, oriented strand board, was down in price by 37.6% in June, compared with June 2006, according to PPI figures. Gypsum products were down 13.3% year over year.

But other materials aren’t experiencing significant drops, for various reasons.

Take cement, for example. That material has been in tight supply for the past several years, Markstein said. Cement was up 6.3% in price between June 2006 and June 2007.

“Increases in nonresidential construction, which uses more cement than residential construction, have largely offset the reduction in demand due to slower residential construction activity,” Markstein said. “World demand for cement pushes demand higher, keeping supplies tight.”

Copper, too, has faced growing demand throughout the world, keeping up its price, he said. According to PPI, copper and brass mill shapes were up 4.8%, year over year, in June.

Energy costs involved with the production of plastic products have kept those prices from dropping much, too, he added. Plastic construction products were down only 0.7%, year over year, in June.

A look at labor

Labor, too, has gotten more expensive, with residential remodeler wages up 2.8% in May, compared with May 2006, Markstein said.

Yet regardless of statistics, the cost of hiring someone to do a project often dwarfs material costs, Cameron said. The current renovation of his backyard is costing him about $3,000 in supplies and nothing more, since he can do the work. Had he hired someone to do it for him, the job would have cost several times that amount, he said.

To get around labor costs, Cameron suggests hiring a contractor who will provide direction only and step away — if, of course, the homeowner is willing to provide a little sweat equity.

Those who do choose to hire a contractor instead will at least be pleased to learn that there are more available workers nowadays than during the height of the boom, Markstein said.

Not long ago, “trying to contract a remodeling job was impossible,” he said. Today, remodelers have a larger pool of ready workers who might otherwise be building new homes, which helps them get to the job faster than before.
Amy Hoak is a MarketWatch reporter based in Chicago.

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