
By Dave DeWitte
dave@corridorbusiness.com
Record lumber prices are adding pressure to new home affordability in the Corridor even as builders see strong demand continuing in 2018 with mortgage interest rates remaining low.
Over the course of the past year, prices for softwood lumber, used primarily in framing, went up 15 percent, while OSB sheeting was up 30 percent at one point, according to the National Association of Home Builders. The average price of a new home sold at the end of 2017 nationwide was $335,000.
Jim McGrew, president of Cedar Rapids-based Suburban Lumber, said heโs seen no slowing of lumber demand, and that holding off on purchases in hopes of a reversal may not be such a good strategy. Industry pricing forecasts have not been encouraging.
โAs far as weโre concerned, itโs at an all-time high and going higher,โ Mr. McGrew said, โso weโre assuming itโs going to continue going up next year.โ
The price increases were coming so rapidly in 2017 that it was possible for customers or even suppliers to get caught in a price pinch.
โThe challenging thing for us and for builders is we quote a product today and when it [the house] actually gets built 60 days from now, itโs a higher price,โ Mr. McGrew said. โWe need a quick turnaround time on decisions.โ
Cascade Manufacturing Co. makes roof and floor trusses to the buyersโ specifications. President Mike Farr is now recommending that builders get project pricing locked in advance.
โWhat they [builders] can do is look at getting the projects locked in on a quarter-to-quarter basis,โ said Mr. Farr, who is also 2018 president of the Greater Cedar Rapids Housing and Building Association. โWe had one customer who locked in [roof trusses for] 16 hog buildings, because thatโs how many they expected to build in the quarter.โ
Des Moines-based Jerryโs Homes builds primarily single-family homes in the Corridor. Vice President of Operations Drew Retz says rising lumber prices โdevastates affordability,โ but mainly for younger, first-time buyers.
โYour younger people, your newer buyer, they just canโt afford it,โ he said. Instead of buying a single-family home, he said first-time buyers are increasingly turning to less expensive condominiums, including duplexes, fourplexes and various townhome configurations that have a lower cost per square foot.
Jerryโs Homes has found its niche in the middle market for single-family homes, with its most popular models offering three bedrooms, two bathrooms, a three-stall garage and upgraded finishes such as granite kitchen countertops. That market is holding up to rising costs.
โI cannot say [lumber pricing] has significantly slowed down demand, but we can anticipate it will if it continues,โ Mr. Retz said.
If there was one event that received most of the blame for the price increase, it was the imposition of tariffs on softwood lumber imported from Canada imposed by the Commerce Department in April. A U.S. trade panel determined that Canada was unfairly subsidizing its lumber industry, and imposed tariffs ranging from 3-24 percent.

Tariffs alone were responsible for nearly 7 percent of the increases, driving up the price of a new home by an average of $1,360 nationwide, according to the National Association of Home Builders.
Mr. McGrew believes tariffs are receiving more of the blame than is necessary, however. He noted the tariffs were not the first the U.S. has imposed on Canadian softwood, even though they had lapsed in the years preceding the new ones.
The 2017 lumber price boom was more a case of demand rising faster than supply, Mr. McGrew said. Demand came not just from a strong building economy, but a strong rebuilding economy. Three hurricanes in 2017 were among the five most costly on record in the United States, according to the National Hurricane Center, with hurricanes Harvey, Irma and Maria accounting for a estimated $265 billion in damage.
Wildfires in the western United States also damaged or destroyed many homes, and lumber supplies were restricted by reduced milling capacity after wildfires in British Columbia forced the closure of some large mills.
A painful reality for homebuilders is that lumber costs arenโt their biggest problem.
โThe biggest issue we face is workforce development and finding bodies and people,โ Mr. Farr said. โItโs driving the rates higher. Laborโs costing more, and thatโs a bigger increase than materials.โ
He noted that Cascade Manufacturing has responded to the challenging labor market by automating any process it can to keep costs low.
โWeโve put a lot of automation into our process in the last two years,โ Mr. Farr said. โWork setting up a truss that took 25 minutes now takes 20 seconds.โ
G.T. Karr of Sueppelโs Siding and Remodeling in Iowa City says the rising material costs havenโt hurt business, although theyโve made it more of a challenge to balance the equation on projects.
โMaterials and labor prices are up, but trying to balance it so we still have a margin to be profitable is the challenge,โ Mr. Karr said.
Better planning is the best way to manage both rising material costs and the limited availability of subcontractors, according to Mr. Karr. He coordinates projects more carefully so that projects donโt come to a standstill when an electrician or plumber canโt get to them immediately.
The prospect of continued cost increases may dampen hopes of new home ownership for those buyers with more limited means, but builders say that for most buyers, the personal and financial benefits of home ownership still outweigh the costs.
โOne thing I like to tell people is the best time to buy a home is always now,โ Mr. Retz said. โWith new construction, our costs never go down. If the cost of lumber goes down, the decrease is usually overcome by other commodities and labor costs.โ