Cost of new homes rising as a result

LUMBER PRICES HIT THE ROOF

March 24, 1993|By Ellen James Martin | Ellen James Martin,Staff Writer

Soaring lumber prices have added several thousand dollars t the cost of an average new home in Maryland just since October. And the doubling of lumber prices at the wholesale level has left builders and lumber retailers groping for explanations.

"Prices have absolutely escalated beyond anyone's comprehension," said Lou Grasmick, chief executive officer of Grasmick Lumber Co., a local supplier. In some instances, he said, lumber prices at the retail level have risen 70 percent to 80 percent in the last six months alone.

Why the rising prices? Lumber industry analysts say a recovering housing market means more demand at a time when thousands of acres of federal timber are being taken out of

production because of environmental concerns. Some home builders also hint that price manipulation may be involved.

Builders in Maryland and across the nation are heaping most blame on federal limits on logging in the Northwest. Although theyare loath to present themselves as opponents of the effort to protect the spotted owl -- one of the species being protected in the region -- they are finding themselves in the position of lobbying against the environmental movement.

"The primary problem is that so much timber has been taken out of production, primarily because of the Endangered Species Act," said Cynthia Adcock, a spokeswoman for the National Association of Home Builders in Washington.

Home builders' assertions that environmental restrictions are the cause of rising prices are hotly disputed by such groups as the Wilderness Society, a forest and wildlife conservation organization based in Washington.

"The culprit is improved demand for lumber due to reduced mortgage rates," said Jeffrey T. Olson, the group's chief economist.

Local lumber sellers seem to side with the builders in the debate over what is pushing up lumber prices.

"It's simply a supply-and-demand situation," said Thomas Murtaugh, vice president for sales at the Ridge Lumber Co., a major local supplier to the home building industry. "There's less lumber in production."

For the average new home in Maryland, which is 1,900 square feet, lumber costs have increased $3,000 since October, according to Gary Blucher, president of the Home Builders Association of Maryland.

Builders have been unable to pass along price increases for homes already under construction but are beginning to raise prices as they write contracts with consumers, he said.

"It's definitely a problem," Mr. Blucher said. "Lumber prices are escalating on such a regular and rapid basis that it doesn't give a builder the ability to adjust his sales price to account for the increase in the materials cost."

"Consumers are understanding in the overall scheme of things," said Nancy Gainer, president of Market Specific Sales Training Inc., a Columbia-based consulting firm for home builders. With interest rates low and consumer confidence rising, she said, the new-home market is becoming less of a buyer's market each day.

Still, the threat of price increases is so significant for the housing industry that builders are not only mounting lobbying campaigns but are also seeking alternatives to the use of lumber in homes.

"The industry is looking very seriously to alternatives to lumber, including plastic and metal studs," said Earl Armiger, president of Ellicott City-based Orchard Development Corp., which will build an apartment complex in the Columbia area this fall and may explore alternative building materials for that project.

This year, the National Association of Homebuilders unveiled a model "resource conservation home" in Bowie that was designed to demonstrate energy-efficient building methods. Among other things, the home uses recycled steel derived from scrap cars for roof trusses and studs.

Richard Haws, a program manager for the American Iron and Steel Institute in Washington, said that steel framing -- the dominant material used in many commercial buildings -- is "currently generating great interest in the residential construction market."

If lumber prices continue to rise, some builders say they hope steel could be a viable alternative.

Still, William Ellingsworth, a spokesman for the national association, said the industry is not yet ready for the widespread use of steel studs or other alternative building materials.

"You're not going to see a mad rush in that direction," he said. "Nobody is geared up for that. The use of metal studs requires training that people don't have."

Although the home building industry has focused primarily on the decline in lumber production from federal lands in the Northwest as the primary reason for the steep price rise, lumber specialists say rising demand has also been a key factor.

"We have recovered from the 1991 recession and, as the economy has gradually recovered, the demand and consumption of wood products has increased," said Jon Anderson, publisher of Random Lengths, a lumber trade publication and market reporting service in Eugene, Ore.

Still, at least one home builder, Mr. Blucher, who is also construction manager for Masonry Contractors, based in Carroll County, said he believes that supply and demand are not the only factors affecting prices, and that mill operators are now padding their prices.

"We feel the manufacturers are taking advantage of the increased business to recoup some revenue that they weren't able to acquire in past years," Mr. Blucher said.

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