Despite soaring lumber prices, home building stays strong in Chippewa Valley

Apr. 4—EAU CLAIRE — Like many industries, home building took a hit when the COVID-19 pandemic struck last spring.

Lumber mills slashed production, prices dropped and many construction projects were put on hold.

What a difference a year makes: Today, lumber prices are through the roof, mills can't keep up with demand and Chippewa Valley home builders report strong demand despite record high prices for building materials.

"When COVID first hit, everybody just paused, but it didn't take long for the market to realize that construction would be one of those things that would help pull us through," said Kevin Anderson, branch manager of Lyman Lumber in Eau Claire and president of the Chippewa Valley Home Builders Association. "In the second half of the year, it just blew up."

The price of lumber is up more than 150% from the early pandemic low, and the price of OSB engineered wood panels is up more than 180% over the same period, Anderson said.

The National Association of Home Builders recently calculated that skyrocketing lumber prices are adding at least $24,000 to the price tag of a typical new single-family home.

That dramatic increase, however, came with a pleasant surprise: While builders normally might expect such rapid inflation to suppress demand, that hasn't happened. In fact, local home builders report being busier than ever.

"It's not all doom and gloom because demand is soaring right now," Anderson said of the local home building market. "From what I'm hearing from my home-building customers, they are receiving more calls about new homes than ever in their history. Several set records last year and are already on pace to break those records this year."

Adam Ashley, president of Ashley Construction and a member of the CVHBA board, expects his company to build about 30 houses in 2021. That's up from an average of 20 to 25 annually over the last four years.

In the past six weeks alone, Ashley said he has had inquiries from 43 potential customers, or about quadruple the average for the time period.

"It costs more money to build a house than it would have a year ago and that stinks," Ashley said. "But the price of existing homes is higher as well, so if you do have a house to sell, you should come out all right."

What's happening, he said, is that market conditions — low inventory and high prices for existing homes, historically low interest rates and escalating lumber prices that show no signs of abating — are pushing people along.

Each conversation with potential clients touches on the volatile market and rapidly rising prices.

"Every single time what I hear from people is that they're worried it will cost even more if they wait longer," Ashley said, "and that with so few homes on the market to buy, they can sell theirs quickly and for more money than ever before."

Some buyers are choosing to counteract the building materials inflation by scaling back the size of their dream homes or dialing back the quality of finishes, he acknowledged.

With the price of building materials continuing to rise — lumber was up about 20% and OSB nearly 40% in the first quarter of 2021 — Lyman has had to alter longstanding practices related to price quotes.

In years past, a quote was good for 30 days and customers had 90 days to take delivery of the desired product. Customers now have just a week to accept a quote and must take delivery within a month.

"These days we don't know if we can get the materials or what we will pay if we do get them," Anderson said, noting that virus-related hurdles in production and transportation of many building materials means they sometimes are not available for immediate delivery.

Likewise, with houses often taking six months to a year from the planning stage to completion, a lot of contractors have had to add language to their contracts to reflect the volatility of the market, Anderson said.

For those residents thinking of waiting until the lumber bubble bursts and prices for wood products return to pre-pandemic levels, Anderson said they may be are out of luck.

Industry analysts, he said, are projecting that lumber prices may have a slight correction but probably will have a higher floor than before the pandemic.

"The prices of a year ago will likely never be seen again," Anderson said.