Lumber Prices Put Sting On Already Tight NH Housing Market

WINDHAM, NH — New Hampshire has one of the hottest real estate markets — with almost no available inventory, tiny vacancy rates, and limited new construction, with people from out of state buying homes without even inspecting them.

While the market was red hot before the COVID-19 pandemic, getting a new home or other projects started was made all the worse as sawmills in a number of states began a slowdown of raw materials and let workers go about a year ago, according to Chris Wilde, chief operating officer for New England Investment and Retirement Group, who has been watching lumber prices.

Sawmills, he said, presumed the worst. But the housing collapse did not occur. In fact, it was the opposite — many homeowners, investors, and others, stuck in their homes for long periods of time, shifted money they would have spent on vacations or other things and put it into real estate or home improvements.

The firm has been involved with investment advisory for about 25 years, in various forms. The company is set to open a location in Windham later this month and has offices in Massachusetts and Florida, too. The company handles about $800 million in assets that are owned by about 500 businesses and families. Client assets, he said, range from $500,000 to $30 million. Some are general contractors or have connections to the construction industry while others are affluent and looking to renovate homes or move into larger homes.

During the past year, Wilde began seeing concerns with his clients when it came to lumber prices and started looking into the situation.

"There's no shortage of trees, of timber, or true raw materials," he said. "There's tons of those. The owners of the land … they aren't seeing crazy demand for trees either. It was a supply problem."

Wilde traces the issue to April 2020 about a month after everything was shut down nationally. Sawmills that produce the retail products after getting trees from landowners shut down or curbed to half or even less capacity. Workers were laid-off and unemployment benefits were extended again and again.

"No one wanted to be stuck with a supply glut (like the Great Recession housing crisis)," he said. "It was huge that the government worked so fast to get relief out to people in March or April after telling them to stay home."

At the same time, Wilde said, urban dwellers began to flee and that drove "a ton of demand" on top of the already high need for new homes or access to housing in New Hampshire and New England — on all income and price levels. Mortgage rates, too, are at historic lows and potential homebuyers can get pre-approved via their cellphones — something that was unheard of 15 years ago, making the competition for final sales worse than before.

The market never slowed down but the sawmills did not catch up and get to full capacity by December 2020, Wilde said. But that is still not enough to keep up with demand and maximizing output.

"Expansion," he said, "will take months."

Wilde, who has been tracking lumber prices, said in the 14 months since the pandemic lockdown, lumber futures have increased nearly 300 percent — and possibly higher by the end of the week. The price of 1,000 feet of board is around $1,500 and it has "never ever been close to that," he said. Normally, it is around $300 to $400 per 1,000 feet, with some seasonal price demand, too, annually. But that price difference is a huge amount on home prices — an estimated $25,000. A home that is priced around $275,000 to $280,000 used to be around $250,000 to build based on previous market rates, Wilde said.

"We don't see that slowing down," he said. "It's going to go higher. You can see, quite easily, another 100 percent (increase)."

At first, the contractors had to split or eat most of the increased lumber costs because many had already agreed to certain prices before the pandemic; builders already had agreements to buyers in writing. But now, that is not happening — "it is being passed onto the homebuyer"; the buyer is taking the hit, he said.

Most of the benefit, too, is limited to one sector, Wilde said. The landowners with the trees are not seeing the benefit of the gains. While contractors are busy, their costs are all over the place due to volatile land acquisition, labor, and material costs. It is mainly the sawmills, he said.

"They are booking record profits," he said.

Wilde said supply and demand issues for lumber though go as far back as 2006 before the housing crisis. He said production capacity was "too much, too fast," and led to a permanent production decline after the crash. The market, he said, had still not grown back to 2006 production levels. It is "modestly below" that level, actually. And some who are connected to the sector are being cautious now. Others, he said, have "very short memories" when it comes to economic cycles and actionable decisions businesses and investors can make.

On the investment side, the moment to benefit from large gains by publicly-traded sawmills is probably out of reach with Wilde saying, "you missed that trade, so to speak." But, if the market continues the way it is, with higher prices, homes bought and sold, renovations and contractors staying busy, especially within the high-end market like lake or ocean properties, teardowns, and other factors, business is going to be good. But "it is going to be very frustrating" for buyers and homeowners looking to renovate, he added.

Another factor, too, will be public policy at the federal level. While there is a limited amount of traditional infrastructure items in President Joe Biden's $1.9 trillion bill, there is money for housing, which Wilde believes will "help push the pressure on demand" even if it is not needed.

On the downside, if interest rates do not stay low, there could be problems. Wilde also said inflation "is already here" despite "what the Fed would like you to believe." If, as an example, interest rates go up, to dampen inflation, at the end of 2021 or the beginning of 2022, that might moderate the building sector and home prices.

But Wilde does not see a drop in lumber futures or other raw materials connected to the sector.

"The only thing that is going to slow this down is a complete resurgence of COVID," he said, "which doesn't seem likely."

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