The Lumber and Chip Shortages Have the Same Root Cause: Underinvestment

Posted on April 30, 2021 by Jorie Helms

Perhaps no manufactured good is less technologically sophisticated than a 2×4, while none is more complex than the latest microprocessors. Yet the U.S. economy is currently suffering from shortages of both lumber and chips—and for similar reasons.
In both cases, today’s shortages are the legacy of past busts, which then led to years of underinvestment that has left producers unable to respond to sudden surges in demand. Start with lumber, which is an essential material input for home building. Sawmills and other wood product manufacturers cut their production capacity by about a quarter after the housing bust. While investment has since recovered, productive capacity in March was still about 11% below the 2006 peak.

Until recently, that seemed like a sound business decision. Most lumber and other wood products are used for construction and furniture manufacturing—two industries that looked to be permanently smaller after the mortgage debt bubble popped. The number of single-family housing starts from 2017 to 2019 was about half what it was from 2003 to 2005. Despite the capacity cuts, the Federal Reserve estimates that sawmills and other wood product manufacturers were operating at about 78% of capacity in the years immediately preceding the pandemic, compared with 79% during the peak of the housing bubble.

The problem—for both home builders and home buyers—is that the construction industry’s lost decade- plus ended so suddenly. Since July, Americans have bought about 79,000 new single-family homes each month, up roughly 50% from the recent pre-pandemic average—and the pace of purchases seems to be accelerating.

Even during the best of circumstances, builders would have struggled to meet that surge in demand, because construction takes time. That’s why the number of completed new homes available for sale has plunged to its lowest level ever. Builders have only been able to prevent overall inventory from collapsing by selling homes where construction hasn’t yet started.

The current situation is being exacerbated by the atrophied lumber supply chain. Just as it takes time to build a house, it takes time for sawmills to boost their capacity. Until then, markets ration scarce quantities through higher prices. The producer-price index—businesses’ version of the consumer-price index—shows that the cost of goods sold by sawmills are up more than 70% since the pandemic began, while the price index for all materials used in construction is up more than 13%.

Despite the strength in demand, soaring costs are causing home builders to begin cutting back on construction starts for new single-family homes.

The situation with chips may seem different, but it’s actually the same. The first key piece of context is the boom-bust cycle that hit America’s semiconductor industry in the 1990s and 2000s. Sales of American-made semiconductors and related devices fell from $94 billion at the peak in 2000 to less than $66 billion the following year. As of 2019, sales were worth less than $65 billion. Similarly, revenues from printed circuit assembly fell from a peak of $37 billion in 2000 to $24 billion by 2002, and were also $24 billion in 2019.

Unsurprisingly, businesses responded to the lack of sales by keeping a tight lid on their investment in property, plant, and equipment. After hitting at a little more than $33 billion in 2000, capital spending on physical manufacturing capacity by the total computer and electronics manufacturing sector was just $25 billion 2019.

Producers in the rest of the world made up the difference as demand from the U.S. and elsewhere continued to rise over the past two decades. But like American sawmills, those foreign producers were similarly unprepared to handle the surge in demand for chips during the pandemic.
Being stuck at home and flush with cash from economic impact payments and enhanced unemployment benefits led to a huge spike in spending on consumer goods that require microprocessors, including phones, TVs, laptops, tablets, exercise equipment, and cars and trucks.

At the same time, businesses felt compelled to spend more on computers, phones, and specialist medical devices either to support their remote workforces or to respond to the pandemic itself.

The combined effect has been similar to the impact of the demand for new homes on the lumber market. But instead of home builders cutting back on construction starts, we have auto makers restraining their production in a hot market even as they get stuck with inventories of parts for unfinished vehicles.

Ultimately, both the lumber shortage and the chip shortage will be resolved with some combination of lower demand and higher supply. The question is how long will it take. Investment takes time, and businesses reasonably want to be confident they won’t get burned with an overhang of excess capacity if the current demand spikes prove short-lived.

This means that the fastest way to fix the current shortages and bring prices back to normal—at least, the fastest way that doesn’t involve tanking the economy—is to keep the boom going. And that seems like the plan of both the Federal Reserve and elected officials.
Write to Matthew C. Klein at matthew.klein@barrons.com

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Building with Natural Gas in Multi-Family Developments

Posted on February 10, 2021 by Jorie Helms

This webinar has been postponed

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Oklahoma Home Builders Association names new officers

Posted on January 25, 2021 by Jorie Helms

The Oklahoma Home Builders Association has selected Jim Schuff, co-owner of Vesta Homes, as 2021 president.

Other officers are Brandon Jackson, of Tara Custom Homes in Tulsa, vice president-treasurer; and Ron Nance, of The Oaks in Lawton, vice president-secretary. Steve Taylor, of CenterPoint Energy, is chairman of the Associates Council.

Four people have been added to the Oklahoma Housing Hall of Fame.

Irvin “Bud” Blakley, as both a past president of the Oklahoma Home Builders Association and the Oklahoma Lumbermen’s Association, was a leader in housing for rural Oklahoma. Through his building company and lumber company in Chandler, he was involved in thousands of homes.

He was active in civics both in Davenport and Chandler. He also was active with the state associations, and the National Association of Home Builders. He was Oklahoma Builder of the Year in 1984 and was one of the state’s first Certified Professional Builders.

Leo Cravens served as the Oklahoma Home Builders Association’s executive officer from 1973 to 2004. He was also principal lobbyist for the association. He was also a past president of the Oklahoma Society of Association Executives and held the Certified Association Executive designation.

He helped shape the housing industry in regard to licensing, workers compensation reform and the association’s support of state "right-to-work" policies.

Ben Newcomer was a homebuilder and developer in the Norman area for more than 40 years. He was in the local and state associations and served was president of the state association in 1983. He most influential as a mentor to many, helping young builders and developers learn the intricacy of their profession. He also was an avid golfer and used lessons learned on the course in many of his business dealings.

Tom Wenrick is a developer, Realtor, and appraiser with 50-plus years of real estate experience, recognized as one of Tulsa’s foremost developers of residential subdivisions and commercial properties.

"It is Tom’s successful legislative advocacy where a developer’s lot inventory to be taxed at cost rather than retail until sold to a third party that distinguishes him among his peers and that has saved builders thousands, if not hundreds of thousands, of dollars over the years," the state association said, noting that Wenrick is a past president of the Tulsa and state associations and both have honored him with Builder of the Year awards.

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Lumber Prices on the Rise – Again

Posted on December 14, 2020 by Jorie Helms

After drifting lower from mid-September to mid-November, lumber prices are on the rise again. Prices peaked at an all-time high of roughly $950 per thousand board feet in September before gradually moving down to around $550 per thousand board feet last month.

However, according to Random Lengths, lumber prices are now above $650 per thousand board — up nearly 20% over the past four weeks.

Elevated lumber prices since mid-April have added thousands of dollars to the cost of new single-family homes and apartment units.

Indications are that lumber producers are reducing production heading into the slower winter building season, even as new residential construction continues to outpace seasonal norms.

However, there is some good news on the lumber front regarding tariffs on Canadian softwood lumber.

The U.S. Commerce Department’s International Trade Administration published an administrative review of anti-dumping duties in late November, followed by an administrative review of countervailing duties on Dec. 1.

The effect of the reviews is that duties on shipments of Canadian lumber into the United States, which currently stand at 20%, will be reduced by more than half, to roughly 9%. The tariff reductions are expected to go into effect in mid-December.

“This is a step in the right direction, as tariffs have contributed to unprecedented price volatility in the lumber market, leading to higher prices and harming housing affordability for American families,” said NAHB Chairman Chuck Fowke. “The United States needs to work with Canadian officials to end the tariffs and achieve a long-term, stable solution in lumber trade that provides for a consistent and fairly priced lumber supply.”

NAHB continues to work on all fronts to find solutions that will ensure a lasting and stable supply of lumber for the home building industry at a competitive price.

For more information on the tariff reduction, contact Felicia Watson at 800-368-5242 x8229 or David Logan at x8448.

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Don’t Miss Registration Discounts and Exciting New Opportunities in IBSx Virtual Experience

Posted on December 8, 2020 by Jorie Helms

IBSxRegistration is open for IBSx, the new International Builders’ Show® virtual experience from NAHB. The in-person event was transitioned to a virtual show due to health and safety concerns surrounding the COVID-19 pandemic.

This online alternative to IBS, the most comprehensive business-building event in residential construction, will showcase the most innovative new products, offer live and semi-live interactive education sessions with on-demand recordings, feature creative networking opportunities such as live chat and one-on-one meeting requests, and much more. Registrants can participate in all of the IBSx offerings, Feb. 9-12, from 10 a.m.-6 p.m. ET daily.

“IBS has always been the premier show of the industry, and this year is no exception. While this year’s show is a different format than our attendees are used to, we think they will really be impressed with the new offerings and top-notch industry access they have come to expect,” said NAHB Chairman Chuck Fowke. “NAHB is excited about the new IBSx virtual experience where participants can log in and have access to innovative product demos, networking opportunities and education sessions — all available from home or the jobsite, on-demand and when they want the information.”

The week will kick off with a special keynote address from well-known television host Mike Rowe. Participants will also be able to stay on top of the latest industry trends and exciting new product launches and demos through product areas such as the Home Tech Zone and Start-up Zone. Networking opportunities and one-on-one live meetings with top industry suppliers and service providers will also be part of the week.

Participants who register with an All Access pass can expand their skills and learn about a variety of cutting-edge topics offered in the more than 100 exclusive education sessions featuring top industry speakers. Another big draw of the week is the unveiling of NAHB’s official show homes, The New American Home® and The New American Remodel®, through a series of virtual tours and presentations. The homes are designed to showcase innovative building technologies, emerging design trends and the latest building products.

IBSx is not open to the public. Industry professionals should register at BuildersShow.com. Expo passes for the virtual event are free for NAHB members, and $50 for non-members. Early-bird pricing — available through Jan. 8 — for an All Access: Education + Expo pass is $199 for NAHB members and $299 for non-members.

Further details on the virtual offerings will be forthcoming. For more information on IBSx or the International Builders’ Show, visit BuildersShow.com.

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3 Design Trends to ‘Fall’ in Love With

Posted on November 30, 2020 by Jorie Helms

Trends in design are inevitable. Some stay for a while, and others just last for a season or two. During the fall season, the trend toward design that elicits feelings of warmth and comfort is prevalent. And with the unwelcome addition of COVID-19 to our daily lives, there has been a trend to create multifunctional spaces that foster feelings of well-being. Merchandisers share how you can incorporate these trending design details into your projects and create positive vibes with prospective buyers.

Materials

As home buyers are looking more and more to their homes as a sanctuary, there is a trend to design with more natural and organic materials. Biophilic design and bringing in greenery with art, wall coverings, or plants into the design continues to be an important trend. And it makes sense when you consider the proven power of nature and natural elements in design. Organic, natural materials incorporated into design can reduce stress, blood pressure and anxiety, as well as enhance a sense of wellbeing.

Fabrics

Creating a cozy, lush environment that promotes relaxing at home is something buyers will be looking for. Textural throws, layered area rugs, and chunky, oversized knit pillows are a great way to meet this expectation. Another fabric that can instantly give a cozy feel is velvet. Very few things say “cozy and safe at home” like velvet upholstered furniture.

Outdoors

We have discussed at length the importance of bringing the outdoors in, and to no one’s surprise, this will continue to be a trend this fall. As more buyers are spending more time in their homes, they want to know they have options for work and entertainment. They need to see that their living area is not limited to the four walls of the house. Bringing the outdoors in either literally by walls that fully retract or visually by floor to ceiling windows continues to be an important trend.

Fall traditionally spurs the trend for designs that promote warmth and comfort. This year is no different. In fact, we would say it is even more so with COVID as part our world (for now). Designing spaces that foster feelings of well-being is most definitely on trend.

This post originally appeared on Best in American Living. Post courtesy of Sue Ridgeway, Director of Marketing at Lita Dirks & Co., an interior design and merchandising firm based in Greenwood Village, Colo.

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