Rising Prices of Lumber and Steel a ‘Terrible Downward Spiral’

Filed in Codes and Regulations, Economics, Trade by on May 17, 2018 0 Comments

Hefty tariffs on Canadian softwood lumber imports are causing lumber prices to skyrocket and making many home builders pray for a prolonged price plateau.

steel tariffsWill it be long before more builders start using alternative materials to lumber? Steel-framed homes make up a very small portion of the overall market, but that may change as prices shift.

“Steel is slightly more expensive [than softwood lumber] at this point,” says Vic DePhillips of Steel Modular Systems in Bloomsburg, Penn. “But if prices for softwoods keep going the way they are, steel might soon be the less expensive option.”

That is, only if steel doesn’t get a similar tariff treatment to that of lumber. Late last month, the Trump administration decided to delay imposing a substantial 25% tariff on imported steel until at least June 1.

While the tariffs are said to be part of a strategy to protect domestic industries, many like DePhillips don’t see it that way.

“Whatever happens with steel, it will be the same as what’s happening with the softwood market: As soon as we put a tariff on [these imports], all the domestic suppliers raise their prices, too,” DePhillips said.

“You mean to tell me that U.S. Steel is going to sell for 12-15% less just because of the tariffs on imports? That’s not going to happen. All of the prices will rise no matter where it’s coming from.”

DePhillips calls the impact of rising materials prices a “terrible downward spiral” that is driving up the cost of new homes. For many consumers, higher costs might deter them from buying a home. And for some builders, it might prevent them from selling more homes.

“Will the price increases simply lead [builders] to pass along a modest surcharge? Or will the higher prices eventually be enough to push them to the point they can’t get appraisals to satisfy a sales price? At this point, we don’t know. But it’s a serious threat to our industry,” DePhillips said.

Surmounting Higher Prices

Despite the rising costs, DePhillips has yet to see any decrease in demand. In fact, keeping up with demand is what has most of his attention — interest in modular construction has increased largely as the result of the skilled labor shortage.

modular construction

Built in Greenwich, Conn., this 4,750-square-foot colonial was manufactured by Westchester Modular Homes and won a 2018 BSC Jerry Rouleau Award for Modular Home Design.

“Though our prices for materials go up just like the next guy, [modular construction] is a way to build more efficiently and at a lower cost,” he said. “Plus, I know there are plants that are currently running under capacity that could help more builders build more products.”

NAHB Chief Economist Robert Dietz agrees that at only 3% of the new-homes market, modular construction could be looked upon as a viable solution to help ease the challenges of limited labor and rising costs.

“Building more with less requires changing how we build — and every little bit helps,” Dietz said. “Assembling more components of a home in factories and transporting them to the construction site is one way for builders to raise productivity and potentially increase profits.”

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