Homebuilders in Berks work to shield buyers from skyrocketing lumber prices

May 13—At a construction site in Berks County, security cameras surveil largely dormant lots, and local police perform regular patrols through the area.

The makeshift defenses aren't exactly impenetrable like Fort Knox in Kentucky, but the precious commodity the builder is guarding — lumber — is perhaps more sought-after than gold these days.

Forino Co., a new home builder with offices in Berks and South Carolina, pre-ordered the heaps of wood in April, before the homes it would be used to assemble even had buyers. The company was anticipating another round of rate hikes, as lumber prices continue to skyrocket across the nation.

"We would rather not pass on thousands of dollars to customers," said Lisa Forino Hermanovich, vice president of Forino.

The average price of a lumber package for any of Forino's homes has already tripled since last winter, with some models edging toward becoming four times more expensive.

And according to the National Association of Home Builders, lumber costs alone have added an average of $36,000 to the price of new single-family home in the last 12 months, and it is still rising.

Only two months earlier, in February, the NAHB estimated a $23,000 year-over-year increase in the average new home price, illustrating the rapid speed at which costs are ballooning.

Sooner or later, the market is going to reach a tipping point.

"We can't continue to pay more and more and more, and expect people to pay more and more," Hermanovich said. "We'll probably head toward the approach where we build homes when lumber is acceptable.

"It's very unbalanced right now," she said. "It's not fair to consumers, and it isn't fair to us."

Why has this happened?

The price increases are the result of a lumber shortage, the reasons for which are multiple, said Dan Durden, CEO of the Pennsylvania Builders Association.

— Demand for home improvements grew, both when the coronavirus gave furloughed and laid-off workers more time for projects around the house, and again when COVID relief payments arrived.

— Tariffs on softwood lumber imports from Canada enacted in 2017 add to the cost of feeding that appetite.

— Mills that manufacture finished wood never scaled production back up to full capacity after the housing market crash in 2008.

"It's not helping your friendly neighborhood builder," Durden said, stressing the conditions causing price hikes have been advantageous neither to local contractors nor sellers.

"In some cases, it's not even a matter of how high they want to charge. You can't even get it. So, for instance, your local lumber distributor would love to charge you a whole bunch of money. He doesn't have it to sell."

Lumber isn't even the only building material that's hard to come by right now.

Strains on supply chains, the introduction of new tariffs and forgotten one-time events like the temporary blockage of the Suez Canal have contributed to delays and higher prices.

"There's almost nothing I could identify that goes into building a new house that has, not just gone up, but gone up significantly in the past year," Durden said. "Anything that involves aluminum, appliances, windows, some siding, concrete are prices way up, solar panels, plastic.

"Things you don't see unless you visit a house when it's being constructed — the stuff behind the walls — a lot of that is imported from China or Asia."

Oftentimes, issues obtaining materials as fundamental as fasteners are adding to the headaches home builders and, in turn, buyers are experiencing.

"There's definitely a component of time that's factored into this," Hermanovich said. "On average, we're probably offering settlement dates that are maybe six weeks longer than they were a year and a half ago.

"In some cases, we're lucky and everything comes in on time, and other times, we need every day of those six weeks to get the things we need."

Builders' dilemmas

Hermanovich noted April wasn't the first time Forino pre-bought lumber for homes that weren't yet sold in an effort to insulate buyers. Nor is that the only tactic builders are using to counter material shortages and surging prices.

Another option is simply letting the buyer sit on a property in the hopes lumber eventually becomes more affordable, a game that doesn't always pan out.

"We try to do everything we can to protect our customers from the price increase," Hermanovich said.

"There were several times in the last couple months where we designed the house, got the building permit and let them wait month by month. In some cases, the lumber came down and they got a better price — and there were others who couldn't wait and paid the higher price."

To help keep its workforce busy, Forino will also lay down foundations before a property is under contract so they're ready to build when lumber prices are reasonable.

Meanwhile, some builders may opt not to offer their services at all if certain conditions can't be met.

"There's other builders who took the approach of, 'We're not going to build right now because we can't guarantee your price or timeframe,'" Hermanovich said. "And that's something that we consider on a weekly basis.

"We have the availability to build a home, we just need to have right buyer."

According to a poll conducted by the NAHB, 29% of builders have reported preordering lumber, 19% say they've delayed selling or building when costs spike, and 15% are laying foundations, then pushing pause.

"We are constantly evaluating and re-evaluating our strategy," Hermanovich said.

A long haul?

There was no great answer about when prices will come down.

"A whole lot of things need to be done," Durden said. "There's no magic wand or one thing."

The lumber and building industries are pushing the Biden administration to reach a new trade agreement with Canada, though those efforts have been slow going.

Low housing inventory has only exacerbated the problem. Durden suggested legislators make life easier for homebuyers — particularly in Pennsylvania, which has one of the oldest housing stocks in the U.S. — by reducing the cost of building permits.

"One thing that can help is reforming development costs in the state, which is regulations governing the use of land," Durden said, noting permits frequently cost upwards of $100,000.

"In most of PA, you're well over six figures before you even move dirt, which makes it hard for the average person to build an affordable home."

Durden doesn't expect to see prices ease much in the next six months. A year from now, assuming crippling inflation doesn't take hold of the economy and employers are able to fill the majority of open positions, the industry may catch up.

At the local level, builders like Forino are trying to juggle soaring costs with buyers' expectations by being up front about the challenges — even if it means putting off a project.

"I don't think it's fair to ask people to lock into something that's uncertain," Hermanovich said. "Our management team re-evaluates how we're going to proceed probably on a weekly basis just so that we don't lock anyone into a situation where they find themselves underwater, or even ourselves underwater."

It's exhausting, she added, though not nearly as much as it is for customers who are already spending hundreds of thousands of dollars, then are counting on having a new home to move into by a certain date.

"My biggest concern is for the people who have to sell a house to buy a house and they choose to build," Hermanovich said. "They're selling a house in the morning and buying the house they built in the afternoon.

"It's a big puzzle that has to all fit together on the same day."