Amid a nationwide shortage of lumber that has contributed to skyrocketing prices, Skagit County builders are moving forward with construction, though say they will have to pass the increased costs onto homebuyers.
Brian Gentry, president of Burlington-based Landed Gentry Homes & Communities, said the cost of lumber is increasing by “a four-figure number” every month.
“That takes a pretty big bite out of our company’s margin,” he said. “It’s a pretty big hit.”
Landed Gentry is building a community of 66 single-family homes in Sedro-Woolley called Cambridge Commons.
Gentry said despite high prices and scarce supplies, his company has been able to secure lumber to continue construction.
He said Landed Gentry has had to stop pre-selling homes because of the rising cost of lumber. The company can’t commit to an upfront purchase price with so much uncertainty around what it will have to pay for materials.
Ultimately, buyers can expect to pay more, Gentry said.
“Bottom line, new homes are going to cost more,” he said.
Sedro-Woolley’s BYK Construction has also felt the impacts of high lumber prices.
“We’ve seen (lumber) double in price, which is really hard for our clients,” said Tim Woodmansee, vice president of BYK. “It’s to the point where people are trying to either wait (to buy), or it’s pricing them out of being able to build.”
He said prices are up for wood products across the board. The company is looking into alternative materials, such as concrete or steel — which in the past have been more expensive than wood.
BYK Construction is building an 85-home, 55-and-older community in Sedro-Woolley, and has another 28-home Sedro-Woolley development in the works.
Woodmansee said the high lumber prices haven’t put a stop to construction.
“We’re not there yet, but we’re at a crossroads on a big project and (lumber costs) are definitely factoring in,” he said.
Evan Holzknecht, owner of Camano Island-based Cascade Lumber, a lumber supplier serving builders throughout the region, said an uptick in demand for lumber began last spring. He expected demand to level off in the winter, but that was not the case.
“We’ve had summertime consumption of lumber in January,” he said. “The market is red-hot and people need to build.”
Holzknecht said because of limited supply, his company is only able to order a week’s worth of lumber at a time instead of a month’s worth.
Tight supply, coupled with high homebuyer demand and enthusiasm for home improvement projects, has fueled high lumber prices, said Paul Jannke of Forest Economic Advisors, a Massachusetts-based independent consulting firm providing market forecasts for the forest products industry.
He said at the beginning of the COVID-19 pandemic, many mills cut production in anticipation of a deep recession. When factories started back up, they faced challenges such as having to shut down if an employee became ill, he said.
Meanwhile, “demand was extremely strong,” Jannke said. He said people stuck at home bought more building materials to fix up their houses and had extra income thanks to government stimulus checks. At the same time, home-buying surged.
“We’ve been through a decade of underbuilding so there is a high level of pent-up demand which was released by a combination of low interest rates and the desire to move out of cities,” Jannke said in a fact sheet on lumber prices shared with the Skagit Valley Herald.
He said despite lumber costs driving up home prices, he doesn’t expect a slowdown in buyer demand.
Jannke said even if lumber prices add $15,000 to the price of a home, the bump represents only a single-digit percentage of the total cost. The impact to an individual homeowner’s monthly mortgage payment is “not much,” he said.
“Potential homebuyers make decisions on monthly payments, not price of lumber,” he said.
Jannke said he expects lumber prices to continue to “edge up a bit and remain high through July” as builders show no signs of cutting back.
Kendra Gentry-Decker, executive vice president of Landed Gentry, said in place of offering pre-sales the company is allowing clients to make reservations on homes under construction or those that are in line for construction.
She said once the price has been locked in, buyers have the option to back out. The downside is that there are fewer options to personalize one’s new home, she said.
Gentry-Decker said many buyers are willing to accept the higher prices, though those buyers tend to be “very well-qualified and have more money to put down on homes.”
She said when Landed Gentry launched the Cambridge Commons neighborhood in November 2019, it sold its first home for just over $400,000. Now, the same home sells for just over $500,000, she said.
She said the rising costs of building materials and labor have played roles in that increase.
Meanwhile, a historic shortage of homes and strong demand have incited fierce competition and price increases.
In March, the median closing price for a home in Skagit County was $485,550, a 27% increase over the previous March, according to data from the Northwest Multiple Listing Service.
“That’s the thing that’s really hard for me,” Gentry-Decker said. “We want everyone who wants to buy one of our homes to be able to. It’s hard when people start looking a year to a year-and-a-half in advance, and when they’re ready to go a year later, they look at pricing and it’s way higher than they planned. It may price them out of the market.”
She hopes that builders can continue to add new homes to address the housing shortage.
“It helps unstick the market, providing new things so others can move and free up existing inventory,” Gentry-Decker said.