Lumber prices normally drop to their lowest levels of the year about now, but uncertainty about future demand has combined with the credit crunch to keep lots of lumber and building materials dealers out of the market, two executives from a Chicago-based lumber wholesaler say.
"With lumber prices where they are, a yard with confidence as to where the market is going in the first quarter would definitely be buying inventory," Mike Wisnefski, vice president of business development at Bloch Lumber Co., says. "But they don't know."
That hesitancy relates directly to the housing slump. The Census Bureau reported today that building permit issuances fell 8.3% in September from the month previous to hit an annual rate of 786,000, while housing starts shrank 6.3% in September from August to reach an annual rate of 817,000. That's the lowest rate for starts since January 1991.
Some dealers responding to a recent PROSALES survey said that the slowdown in payments they're getting from builders has made it more difficult for them to have cash available for picking up bargains. In addition, about one in 10 dealers said in the poll this month that its bank has reduced or cut off its credit line since Aug. 1.
"Uncertainty for the future affects 100% of lumber dealers," Gregg Riley, president of Bloch Lumber, said. "Access to credit affects a smaller percentage."
Wisnefski said the current problems also are likely to provoke volatility in lumber prices. The lack of demand today will depress prices now as well as encourage even more mills to close, he said. But come spring, if there's any pickup in housing, both dealers and lumber mills could face a sudden shortage of building stock. That demand could cause prices to shoot up.
Craig Webb is editor of PROSALES magazine.
Learn more about markets featured in this article: Chicago, IL.