Lumber Price Spikes a Boon to Big Builders?

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Recent price spikes for framing lumber, wood structural panels and oriented strand board have led some Wall Street stock analysts to conclude that private builders are an endangered species.

March 01, 2004

Recent price spikes for framing lumber, wood structural panels and oriented strand board have led some Wall Street stock analysts to conclude that private builders are an endangered species.

"Not able to negotiate with vendors, private builders are absorbing the cost increases, attempting to raise home prices or shutting down temporarily, allowing room for public builders to capture market share," says UBS Investment Bank's Margaret Whelan. She cited the impact of a 31% year-to-year price increase for framing lumber for the week ending Feb. 20, as well as year-to-year jumps of 117% for structural panels and 147% for OSB.

While big builders might have advantages in an unstable cost environment, we doubt they accrue only to those that are public. Moreover, small builders might have more flexibility to shift to alternative materials such as steel framing (although steel prices also are increasing).

Perhaps the most logical move for small builders is to join a buying cooperative to gain some of the negotiating advantages of bigness. "I'm forming one right now," says semicustom builder Barry Rutenberg of Gainesville, Fla. Coincidentally, he was a longtime chairman of the NAHB's now-defunct Building Materials Task Force.

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