Pandemic-Fueled Supply Chain Woes Causing Big Problems for Builders

We were getting estimates from contractors for one of our rehabs last week and one of them kept me on the phone for 30 minutes complaining about the cost of lumber at Menard’s a local hardware store. He said that in one day the price for lumber had tripled. That reminded me of this great article from Sue Hough on Bigger Pockets.

Reprint

Sue Hough (Bigger Pockets) August 31, 2020

 

COVID-19 is creating a maze of confusion on the building front. As I build homes in the Chicago market, let me take a moment to share the overall construction material crisis I am experiencing.
It is my hope you can use the following information to properly evaluate the direct increase in construction costs and the indirect additional expenses you might experience due to material shortages, helping you to protect your profit margins and the overall health of your projects.Industry-specific factory shutdowns and material shortages are causing drastic supply and demand fluctuations that are extending lead times while pricing is on the rise. And this crisis expands past Chicago—the entire country is experiencing the same.At times like these, it’s important to keep a close eye on analyst reports and commodities trackers. Most are confirming that the global pandemic will continue to cause construction industry disruptions through the end of the year and solidly into 2021.

Suppliers are facing numerous coronavirus outbreak challenges across their labor and distribution platforms. This means that developers won’t be able to move at the expedited paces they are used to or that the marketplace is demanding.
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Lumber Woes

America was already facing a reduced lumber supply as 2020 began, but the continued pace of building projects and a slowdown in imports have made lumber a hard-to-find commodity. If your project is lumber dependent, get ready for some sticker shock.

The price of lumber is on a dramatic tear, trading over 100% higher since January 2020. Weyerhaeuser and Boise Cascade recently announced an immediate 10% increase in their engineered wood products (EWP). And we may start seeing more price increases to accommodate fluctuations currently being experienced in the market.

Lead times on delivery have also been pushed back by several weeks or even months as lumber mills have slowed production or even shut down due to quarantine or social distancing measures. These two factors mean you can expect to add thousands of dollars to the cost of construction projects.

Masonite interior doors are averaging eight to 10 weeks for delivery compared to two weeks back in June. Cabinetry is following suit. Other millwork, particularly items produced in Brazil, also have growing lead times. Many suppliers are reporting very limited or no supply of cedar decking.

Manufacturing Challenges

Just like the lumber shortage, the manufacturing industry is also experiencing a pandemic-influenced slowdown in product availability. With so many items coming from overseas facilities, delays in global shipping mean shortages in existing products or the introduction of new products.

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  • Door hardware: Schlage has little or no inventory available, resulting in empty shelves and long lead times. Many others have parts produced overseas and are starting to see some long lead times.
  • Plumbing supplies: Kohler’s lead times have doubled, and Toto is seeing 2-plus-month delays.
  • Roofing materials: Roofing Contractor has been tracking the availability of roofing materials amid the pandemic-related factory shutdowns, forecasting pricing spikes in the near-term. CertainTeed stock is almost depleted in the Midwest with no word on new availability. Although there are GAF shingles available, anything not in stock color is facing 2-3 months lead time.
  • PVC decking: Trex is currently out of stock with no available replacement time. Azek is available in limited supply with future material lead times of 2-3 months.

Don’t forget that even though products are often assembled in the U.S., most components are produced overseas. And anything produced overseas, particularly in China, is currently experiencing backlogs between 2-4 months. Unfortunately, most suppliers are unable to give any lead times because of the volatility in the supply chain.

Proceed With Caution

So, what does all this mean for you as a builder? Be extra cautious and use common sense when providing bids for projects that may be delayed for several months from the time the proposal is submitted. If you haven’t started a new project yet, particularly one that is heavily dependent on any of the materials that are experiencing an extreme spike in price or depleted stock, you might consider pausing until prices even out.

When you’re building, time is money, so be aware that the supply chain delay may mean having to hold onto inventory longer than expected. Make sure your investment strategy accounts for this hold time.