Edited by Ted
Cushman
CONTENTS:
Lumber Price Shock Hits Builders
Consumer Reports Rates Vinyl Siding,
Shingles, and Paint
A Million Dollar Shop Project
Window Leaks Rampant, Canadian Study
Reports
Business Tune-Up: Recordkeeping
Reality
Earthquakes and Hurricanes to
Order
Offcuts
Lumber Price Shock Hits
Builders
Framing lumber prices doubled between late spring and early
fall, while OSB prices more than tripled. The record-setting
price spike put serious stress on builder profit margins but
hit some specialty producers even harder: I-joist and SIP
manufacturers count OSB as a top cost component, and for some
the squeeze approached crisis proportions.
For many contractors, availability was a bigger problem than
cost, as shortages cropped up in many markets. And while
experts said the tight conditions couldn't last, lumber market
newsletter Random Lengths reported in September that OSB
mill orders were still backed up into December, while the
housing boom driving demand showed no sign of slacking. One
buyer told Random Lengths he was chasing OSB orders
"like a pit bull chasing a pork chop train."
Widespread expectations of interest
hikes and a cooling summer market proved incorrect at
summer’s end, as August home sales continued to set
records. More responsive than sawn lumber to production moves
by big suppliers, OSB prices posted a redoubled surge following
production cuts by market leader
Louisiana-Pacific.
What's behind it?
According to University of Massachusetts economist David
Damery, a specialist in building material markets, the price
spike can be traced to a confluence of related factors that put
wood buyers in the path of a "perfect storm." Buying decisions,
production decisions, and industry structure all played a role,
says Damery:
• Most
players in the industry (including lumber wholesalers and
retailers as well as big building outfits) expected interest
rates to rise and home building to slow in the second half of
2003. Afraid they'd be stuck with unsold inventory, they played
safe and deferred purchases. But interest rates stayed low, and
summer building markets were hotter than ever — leaving
everyone short of ready wood.
• Supply shocks.
Summer fires cut log supplies to many mills, shrinking supply
as demand surged. In addition, some OSB suppliers reduced
production in response to low prices or in anticipation of the
slowdown that never came.
• Demand shocks.
Fingers are pointing now at large military panel and
dimensional lumber purchases in late summer to supply U.S.
forces in Iraq. The purchases were small in relation to the
total market — "about 20 million square feet total, out
of annual production of 36 billion square feet," says NAHB
economist Gopal Ahluwahlia. But the Iraq buy came just when
supplies were tightest — and the military won't say if
more such moves are in the cards. This unexpected demand, and
the uncertainty that comes with it, may have had an amplified
effect on price movements. "There was a lot of panic buying,"
says Ahluwahlia.
• Industry structure.
Unlike the relatively competitive sawn lumber industry, the
market for OSB is dominated by a handful of large companies,
Damery points out. This may help explain why OSB showed an
earlier and stronger price surge than sawn lumber. The steep
rise started almost immediately after Louisiana- Pacific, the
leading OSB manufacturer, announced production cuts totaling
some 50 million square feet at six OSB mills. An industry
analyst told the Reuters news agency that L-P had reduced panel
capacity by 1 billion board feet in the preceding year because
of slack prices.
This "oligopoly" situation may also slow OSB's price decline
at the end of the cycle: When one company's production
decisions can affect prices noticeably, firms with one eye on
competitor moves and one on the markets can sometimes keep
output lower and profits higher than they would be under
conditions of pure competition, without actively colluding or
violating any laws.
What's ahead?
Differences between panel and sawn wood markets aside, experts
agree that prices for both have to drop eventually. "We think
this is a temporary thing. Before too long it is going to go
away," says Ahluwahlia.
In the meantime, builders face a struggle to absorb a cost
they weren't ready for. But the recent increases come after
many years of depressed lumber prices and thin manufacturer
profits; even now, it is the suddenness of the price moves
rather than the absolute cost of wood that creates problems.
"Actually, the price of lumber has behaved really well," says
Ahluwahlia. "Builders don't really start complaining until the
Random Lengths composite price for panels exceeds $500.
But builders are pre-selling, and it takes four to six months
to build a home. When this temporary hike comes, they are stuck
with it."
Those who were prepared, on the other hand, are now sitting
pretty. A Home Depot spokesperson told newspapers that the firm
has long-term contracts locking in its OSB deals and does not
expect any shortages. And there are smiles in the boardrooms at
big OSB producers: Georgia-Pacific, Weyerhaeuser, Boise
Cascade, and L-P will all see better third-quarter financial
reports from the higher prices.
L-P chief executive Mark Suwyn told Reuters in September that
the company planned to freeze its OSB price in light of the
emergency created by Hurricane Isabel: "We don't think we ought
to pile on and take advantage." That frozen price, however, is
a sweet one for L-P: about $445 per 1,000 square foot —
up from $158 a year earlier.
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Consumer
Reports Rates Vinyl Siding, Shingles, and Paint
Next time you install shingles, siding, paint, or deck stain
for a customer, don't be surprised if she brings up
Consumer
Reports. Long trusted as an authority on appliances,
vehicles, and other consumer goods, the nonprofit magazine has
added building materials to its repertory in recent years. The
August 2003 issue looked at fiberglass-asphalt roofing
shingles, vinyl siding, paint, and deck stains, picking "Best
Buy" winners in all four categories. Ratings are based on lab
tests dreamed up by
Consumer Reports technicians, as
well as industry-accepted standard tests.
In the roofing category, three-tab roofing shingles from
CertainTeed and Owens Corning, priced around $30 a square, were
the magazine's "Quick Picks" for a good deal. CertainTeed's
Grand Manor Shangle, a heavyweight laminated with a lifetime
guarantee and a $140/square price tag to match, was rated the
top performer when budget is not an issue.
Paint brands varied by color; Consumer Reports named
M.A. Bruder Sea Shore as the top white paint, Glidden Endurance
the best blue, and California Fresh Coat Velvet as the top
brown (and the only brown paint still showing in prime
condition after nine years). All three top brands placed highly
in every color, but the California brand is available only in
the East, the magazine noted, and rated Glidden's white a
better value anyway at $17/gallon (vs. $25 for
California).
Vinyl siding tests showed mixed results. Brands were tested
for color fading and stiffness as well as for resistance to
wind and impact. LP Vinyl Siding's Norman Rockwell ColorGuard
(the costliest brand on the list) led the combined rankings,
but CertainTeed, Norandex, and Wolverine products did better on
the wind testing; Mastic and Alcoa products scored top numbers
in impact resistance.
Painters, roofers, and siding contractors, Consumer
Reports noted, tend to be attached to their favorite
brands. So the magazine advised homeowners to pick the brand
first, then the contractor — something to think about if
you're selling the job.
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A Million Dollar Shop
Project
If you took shop in high school, you may have had projects
like a bird feeder, a wall plaque, maybe even a coffee table.
That's nice, but kids these days are ambitious. Take a look at
this project. Seventy high school students from Fairfax County,
Va., spent two years working on a brick-sided colonial-style
home in a McLean neighborhood and put the finished house on the
market. In September, realtor Lilian Jorgenson's office told
JLC the sale was scheduled to close in a week. The price
tag? Around $1.3 million.
Specialty trade contractors completed
some of the more difficult details, but 70 high school kids
carried out the bulk of the construction trade work on this
high-end Virginia home.
Jeff McFarland, the Fairfax school system's trade and
industrial education coordinator, told a Washington Post
reporter that his vocational programs are no dumping ground.
"Most of the kids are college bound," he said. "They're
thinkers." McFarland pays the students $8.50/hour for their
after-school labor time and keeps work hours flexible so kids
can attend conventional classes and keep their grades up.
The students get hands-on experience pouring foundations,
framing walls and floors, setting trusses, installing doors and
windows, building stairs, laying wood floors, placing cabinets,
and running trim (including crown molding). Some of the hardest
and most skilled jobs are subcontracted out, but some students
get instruction from specialty contractors in masonry, concrete
work, painting, and mechanical trades. "All their parents came
to the open house," said Jeanette McDonald of Long and Foster
Real Estate, "and the kids were showing the moms and dads what
they had done."
"I don't know what it's like in other places," said school
official Paul Reigneir, "but around here the market is very
hot, and we need people to build. If they come back from
college and run contracting companies, that will be
great."
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Window Leaks Rampant,
Canadian Study Reports
An intensive study of window performance carried out by the
Canada Mortgage and Housing Corporation (CMHC) and the British
Columbia provincial Homeowner Protection Office (HPO) reported
last winter that most if not all windows are prone to
significant water leakage. Manufacturing, building design,
installation, and maintenance were all contributing factors:
More than half of new windows let water get past the operable
glazing in factory testing. In on-site quality-control
inspections using a different test method, 35% to 48% of newly
installed windows were found to leak through the window unit
itself, through joints between the window and the rough
opening, or both.
The passage of time, not surprisingly, does not make leaks go
away. After several years in service, the incidence of leaks
rose because of deterioration and wear and tear. Windows in
homes performed worse than commercial windows: 100% of
installed residential windows examined after years in service
were found to leak either through the window unit itself or at
points of attachment to the building.
The report draws on data from only a few hundred windows (all
made in Canada), and the authors did not identify any window
brands. "There are probably a thousand window manufacturers in
Canada, and the quality varies widely here as in the U.S.,"
says Bob Maling, research and education director for the
Homeowner Protection Office. "But the observations in that
report apply to any company's windows in the U.S. or Canada.
Even the best-made window could be damaged during shipping or
installation. So designers today should take the approach that
any window may allow water through at some time, and you should
design the wall to handle that water."
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Business Tune-Up:
Recordkeeping Reality
If you're shifting from an on-site to an office role, you
may want to take a fresh look at your approach to accuracy.
Whether it's carpentry or bookkeeping, the appropriate level of
precision can vary from one situation to the next. You don't
try to be as accurate when you frame a wall as when you're
fitting an outside corner joint in stain-grade crown molding.
By the same token, there are places in your bookkeeping that
call for the framing level of accuracy, and places where you
should work to fine finish tolerances — and it's
important to stay clear on which is which.
You don't want to mess with the government, so you'd better
make sure your sales tax and payroll liabilities are
crown-molding quality. But if you remember paying for a tube of
caulk with pocket cash, and you can't find the sales slip, it's
better to throw in an approximate figure than to not enter
anything — don't spend 20 minutes searching for the slip.
And while it's important to invoice your customers for all
expenses incurred during their projects, I have seen too many
instances where contractors are missing a slip or two, or got
confused about an item they forgot to write down, and wind up
holding the invoice until they're certain the figures on it are
100% correct. (I have seen two-year-old stacks of such
invoices!)
Meanwhile, the billing delay hurts their cash flow, disrupts
the payment schedule, gives the customer time to use up his
money on something else, makes the contractor look
unprofessional (or too profitable to care!), and clutters up
the contractor's To Do List. Better to send out a nearly
accurate invoice, get the cash, identify and fix the hole in
your system that led to the confusion, and then move on.
In a perfect world, your system would keep track of every
penny, and your framing would be accurate to 1/32 inch. But
reality requires you to spend your time where it does the most
good and not let your business get bogged down in excessive
detail.
Melanie Hodgdonis a business systems consultant for
builders in Bristol, Maine.
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Earthquakes and
Hurricanes to Order
The next time Stockton, Calif., is battered by an earthquake
or hurricane-force winds, the newly opened Tyrell Gilb Research
Laboratory would seem to be the ideal place to take shelter.
Its heavily reinforced, 3-foot-thick concrete foundation was
specifically engineered to absorb the enormous forces
characteristic of either type of disaster. At the Gilb lab,
though, those forces are generated inside the building
itself.
The new state-of-the-art seismic research lab was built for
Simpson Strong-Tie, the Dublin, California-based manufacturer
of metal structural connectors, shear walls, and anchor
systems. Simpson's new facility isn't the first earthquake
simulator in the region. Two California universities and one in
neighboring Nevada have their own seismic research facilities,
but according to Simpson's building systems research and
development manager Steve Pryor, university-based research
tends to focus on heavy concrete and steel structures. "To most
researchers, wood just isn't very sexy," he says. The Stockton
facility, on the other hand, was designed from the ground up to
evaluate the performance of wood-framed wall sections. To
simulate various floor and roof loads, researchers can easily
add to test assemblies anywhere from 1,000 to 36,000 pounds of
weight in 500-pound increments. Each test assembly is shaken in
only one degree of freedom, instead of being simultaneously
shaken from side to side, up and down, and front to back, as on
a conventional shake table. In addition to its wall-shaking
capabilities, the new lab also has the machinery needed to bend
test walls forcefully out of shape. Two large cyclic test
frames simulate any desired wind loads by applying force
directly to wall sections with hydraulic pistons.
A three-story wall section is mounted on
a shake table at Simpson Strong-Tie's Stockton, Calif., test
facility (left). After a good shaking (right), it shows
extensive damage, including cracked plates and buckled
sheathing. The arrows indicate where the headers above the
second-floor opening have separated from the king
studs.
In July, guests at the official opening of the $10 million
facility were treated to a sobering look at how much force an
earthquake involves and its possible effect on a wood-framed
wall. When a three-story wall section was subjected to a
side-to-side shake comparable to the 1994 Northridge quake, the
third story seemed to whip back and forth more rapidly than the
second story, which in turn moved more than the first. But
within a few seconds, the second-floor framing was so badly
damaged — the plates shimmying, ganged studs separating
from one another and the sheathing, and the OSB sheathing
itself pulling away from the nails — that it lost its
ability to transfer shear forces to the story above. The less
visibly damaged third floor appeared almost to stop moving,
even as the two lower floors continued to lash from side to
side.
When all movement finally stopped and the cracking of tortured
framing lumber faded to momentary silence, a sound seldom
associated with severe earthquakes was heard — a
spontaneous burst of cheers and applause. (To see a video of
the demonstration, go to Simpson's website at
www.strongtie.com/about/lab.html.)
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Offcuts
The West Virginia state agency with the worst record for
workers' comp claim expenses is the Workers Compensation
Division, reports the
Wheeling News-Register. A
state official said most of the claims are based on carpal
tunnel injuries. The agency plans to increase safety training
efforts, but a
News-Register editorial suggested that
the high claims rate might be related to agency employees'
inside knowledge of how to "play the system."
Forty thousand women showed up at Home Depot for
ladies-only classes on remodeling and fix-it techniques last
summer, reports the Hartford Courant, pointing up
the growing importance of women in the remodeling market. Women
make up about half the shoppers at DIY chain stores, but one
survey indicated that they make 80% of the decorating and home
improvement decisions. About half of single mothers, a growing
segment of the public, own their own homes; in 2001 a million
houses were bought by single moms. And a Lowe's survey found
that 94% of women complete at least one home improvement
project every five years.
Flood damage to a Rockbridge County, Va., home in the
aftermath of Hurricane Isabel upset the owner so much that
he burned the building down, the Washington Times
reported. Homeowner Donnie Clark said he poured diesel fuel
into the uninhabitable building and lit it on fire because he
"couldn't stand to look at it anymore." Around 800 homes across
the state were totaled by the storm, Virginia Governor Mark
Warner told reporters.
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