Skyrocketing prices, demand for new homes signal uptick in Maine lumber market
Prices for wood to build and renovate houses have as much as doubled over the past six months, increasing costs for consumers but boosting Maine’s softwood sales and signaling a turnaround in that segment of the forestry market, industry experts say.
A number of factors drove up the price of wood. They include pent-up demand for new houses or additions following the recession, forest fires last year in western Canada that destroyed prime forests and shuttered mills for up to two months, a trade dispute between the United States and Canada, and hurricanes and other weather that created demand for repairs and new homes. A shortage of railcars and trucks also made it more difficult to transport lumber.
That all translates into a tight supply of wood.
To meet demand, mills in the state are boosting production, adding jobs and raising wages. Some lumber yards are giving materials quotes to builders that are valid for only one week because prices are fluctuating so dramatically. And builders are seeing strong demand from home buyers, who will have to pay an extra $7,000 to $15,000 for a new house.
The turnaround in the softwood market started in 2016, said David Flanagan, president of Viking Lumber in Belfast. He attributed it to consumers feeling more comfortable financially about building a new house, addition, deck or kitchen after the recession.
“Two years ago, framing lumber for houses was the same price as it was 16 years ago,” Flanagan said. “Forest products have been way overdue for an inflationary adjustment. The market was depressed for a lot of reasons, including a lack of demand and an oversupply.”
But in the past couple of years, “prices of lumber have gone up faster than I’ve ever seen them,” Flanagan said.
Dann Waldron, owner of Whitecap Builders in Belfast, said the rapidly rising prices “had me spooked this spring. We didn’t know if we should decrease our markup or labor rates, but we haven’t had to do that yet.”
He said that in the last six months, the price for some 8-foot 2-inch-by-4-inch boards more than doubled to $4.50 from $1.80.
“The price signals are very good. It looks like a [forestry market] rebound,” said Mindy Crandell, assistant professor of forest landscape management and economics at the University of Maine in Orono. “And employment overtime in the sawmill industry is ticking up.”
Demand for houses remains strong
While demand for new housing is not as strong as it was in the early 2000s, it is at a healthy and sustainable level now, Flanagan said.
Nationwide, housing starts for privately owned homes were up 5 percent to 1.35 million in May 2018 compared to April 2018, according to U.S. Census Bureau and U.S. Department of Housing and Urban Development figures. They also were up 8 percent over May 2017.
In Maine, demand for new housing tanked from mid-2007 through the recession. Demand has fluctuated greatly from January 2016 until this April, hitting a low of 121 new units in January 2018 before rebounding.to 309 units in April, according to the Federal Reserve Bank of St. Louis.
Maine has enough wood to meet local demand, but mills ship throughout the northeast United States.
“Housing starts are climbing up and still are below where they need to be to handle the [overall U.S.] population growth,” said Chris Brochu, co-president of Pleasant River Lumber, which has mills in Dover-Foxcroft, Jackman, Sanford and Hancock.
Depending on the type and size of the lumber, prices are up at least 20 percent, adding 1-2 percent to the price of a new home, Flanagan said.
He and others think the prices will stabilize soon, because mills will produce more lumber to meet the high demand.
“Prices are going up everywhere, it’s not unique to Maine,” said Patrick Stauch, executive director of the Maine Forest Products Council, an industry group in Augusta. “The upside is that the health of sawmills is improving. They’re looking for more people to put on a third shift.”
Mills use profits to expand
Stauch said the sawmills that have survived are all making improvements.
Pleasant River is expanding both its Dover-Foxcroft and Jackman mills. In April, it received a $4.2 million grant from the Maine Technology Institute to help fund the $12 million expansion in Dover-Foxcroft. The money is from a program financed by a $45 million bond approved by Maine voters in June 2017.
The expansion will let the mill cut small fir round wood that is coming onto the market for construction after the spruce budworm crisis in the 1970s and 80s depleted trees with larger diameters. And it will add 50 percent to Dover-Foxcroft’s current production of 100 million board feet annually.
The first phase of the three-phase project is underway. It is expected to be completed in the spring of 2020, and add about 20 employees to the existing 95.
The $5 million expansion in Jackman includes a dry kiln. Pleasant River has hired 20 people in Jackman since last September to make dimensional spruce lumber and to start a second shift. That mill has 92 employees and Pleasant River plans to add 10 more.
“We’re reinvesting our extra profits in these projects,” Brochu said.
He said the competition in the market is increasing wages.
The number of jobs in sawmills and wood preservation increased from 1,793 in 2012 to 2,023 in 2017, according to the Maine Department of Labor. During that period, the average annual wage rose from $40,463 to $45,902.
Statistics are not yet available to predict whether the upward trends in jobs and wages will continue, said Ruth Pease, economic research analyst at the Maine labor department.