Michigan isn’t “out of the woods” yet with COVID-19.
But economically, it’s pretty close to being literally “out of the woods.”
Lumber is in short supply and prices have nearly doubled since January 2020, per the U.S. Department of Labor. While costs are up across the board, prices are even higher for certain types of wood. Softwood lumber – which is used in building construction – is up 121% compared to last April. Plywood is up 70%.
(Can’t see the chart? Click here.)
And there’s “not a lot of mystery to it,” said Ken Simonson, chief economist with the Associated General Contractors of America.
It’s a textbook case of supply and demand.
“The pandemic certainly caused a lot of production to shut down. That included lumber mills,” Simonson said. “Once the economy reopened, people rushed out to buy homes or remodel and add to their homes when they realized they’d be working from home and having kids going to school from home.”
Prices are only expected to keep rising, economists and experts say. Michiganders who started building projects at the beginning of the pandemic are glad they beat the rush.
Jonathan VanDerhoof, of Midland, replaced his 12-by-10-foot deck last spring. Lumber prices had already started inching up – because of both the pandemic and the flooding from the Midland dam breaks.
The $720 he spent on lumber would now cost well over $1,000. His one-month wait for supplies would also likely be much longer. VanDerhoof said he’d think twice about doing the project if he had waited until this spring.
But his impeccable timing gave his family more outdoor livable space to use – a luxury that comes at a premium during the pandemic, as people spend more time at home.
“Due to COVID, there wasn’t a lot of things to go do and see,” VanDerhoof said. “So we did several fairly big house projects just to take advantage of the time built in, being stuck at home.”
Mike Pyrc, of Montrose, is another one of the lucky ones. He put a deck on his house last August before prices got out of hand. Pyrc works in video production, so he’s been working from home since the start of the pandemic.
“We’ve been wanting to do that for a while now,” Pyrc said. “Having that extra stimulus money helped.”
On the unlucky side of the spectrum is Dan Olsen.
Thanks to the lumber shortage, his screened-in porch has become a makeshift storage shack, complete with a ladder, gas can, grill, furniture, a bike and more. He had planned on building a garage for storage after buying his house in Pentwater last January.
Olsen started getting quotes in fall 2020 for a two-car garage with living space above it.
The first was $140,000. Then another for $240,000.
“My jaw dropped,” Olsen said. “It definitely came with a sticker shock. I knew immediately that’s not something that’s going to get done this year. I’m just going back to the drawing board.”
The $240,000 could have built him an entire house a few years ago, Olsen said. His new plan is to enclose the porch with walls – but finding cheap lumber for that project has been tough, too.
“Maybe waiting isn’t so bad,” Olsen said.
How the housing market frenzy fits in
The housing market is hot.
The average Michigan house sold for $189,000 in 2019. So far in 2021, that number is $216,000, per Michigan Realtors data.
Some are moving out of apartments to get more space – since they’re spending more time at home. Others have extra cash and are investing in real estate or buying vacation homes. Meanwhile, there isn’t a supply of cheap, foreclosed homes that normally make prices more competitive, because of the eviction ban.
Low interest rates also incentivize prospective home buyers to take advantage before borrowing rates rise again, keeping demand high.
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Building a house from scratch is one solution. But it’s becoming less affordable by the day.
“Customers and builders are having to go back to the bank and say, ‘Well, when we priced this out, lumber cost X, (and it’s) now Y,’” said Bob Filka, CEO of the Home Builders Association of Michigan. “Suddenly, instead of a $320,000 mortgage, they need a $350,000 mortgage.”
Because of lumber alone, the average price of building a house is up $36,000, Filka said.
New home construction tanked in Michigan during the recession and never recovered. Michigan should build about 28,000 new homes each year to keep up with needs, but has built below 17,000 every year since 2007, per U.S. Census data. That’s a major factor in Michigan’s current housing shortage.
At the start of the pandemic, new housing permits in Michigan plummeted. But demand surged in the second half of 2020 and didn’t slow down in the winter months like normal.
(Can’t see the chart? Click here.)
Michigan issued more new single-use housing permits in the second half of 2020 (9,096) than in the second half of any year since 2006.
Wood represents a large chunk of the building costs for a house, Filka said. Besides the framing and trusses, it also is needed for cabinets, flooring, walling material and more.
Producers can’t keep up, he said.
‘It’s going to get worse before it gets better’
Instead of taking five or six months to build a house, it now takes a year, on average, Filka said.
While some builders have less on their plates – thanks to skyrocketing prices – others are overburdened with projects. One northern Michigan builder has a two-year waiting list, Filka said.
“I think it’s going to get worse before it gets better,” Filka said. “We’re not out of the woods yet on COVID. Demand is growing, still. I don’t see the problem being resolved any time in the near term.”
Even composite decks – made of plastic film and wood fibers – are getting expensive as people look for alternatives to lumber.
Custom Deck Creations, a composite deck builder in Canton, is scheduling projects for mid-August through mid-September due to a “high volume of interest,” according to its answering machine.
The stumping question is – do your home renovation or deck projects now or wait for prices to drop?
“If what you’re concerned about is the price, just wait until next summer and you’ll be better off,” said Trey Malone, assistant professor in the Department of Agricultural Food and Resource Economics at Michigan State University.
But there are no guarantees. If hoards of people wait until 2022, that demand could keep prices up.
Robert Tawse owns the Wixom construction company Out N Out Quality. He’s having trouble finding workers and finding customers willing to go out on a limb and build while lumber and material costs are high.
“My opinion is, by September, October, we’re going to be in one of the larger recessions,” Tawse said. “I don’t see this getting fixed anytime (soon).”
Everything’s in short supply, Tawse said. “And it’s getting shorter.”
What can the government do? Economists and industry experts said getting rid of Canadian tariffs on lumber would be a strong start.
Another idea Filka floats is to host a national summit with the major players in the lumber industry – like President Joe Biden is doing with the semiconductor industry.
In the meantime, businesses like Spring Arbor Lumber and Home Center will keep delivering the bad news to customers.
The company’s president, Kyle Holton, who’s been in the business for 30 years, said he’s never seen anything like it.
“A customer calls and maybe they haven’t bought some plywood in a while, and all of a sudden you say, ‘Hey, it’s $50 a sheet.’ And they’re like, ‘What? It should be $10.’” Holton said. “What do you do? That’s just where we’re at right now. It’s pretty crazy.”
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