Southern Oregon log prices hit a 25-year record this month. Most product prices are keeping up with logs, but some lumber prices are lagging. Weekly mortgage interest rates are also rising rapidly again. Building with wood is a bargain today. Recent trends of lumber, logs, home construction and housing markets are compared in this month’s timber report.
Interpretation and Looking Ahead
The biggest news this month is the jump in log price, already in record territory for recent years. The #2-Douglas-fir logs (2-mill logs) rose from $810/MBF last month to $863/MBF, a 6.5 percent gain in one month. This month’s price is a recent record, 25 years to be exact. The strong demand for logs is driven not only by an improved economy and increased housing starts (which are probably taking a weather-related breather), but a widely reported record $300 billion in hurricane, tornado, fire, flood and other damages in the U.S. in 2017.
Studs had a $5 rise in price, but it is no match for the $53 rise in log prices. Mills which produce low value commodities like 2x4 studs, as well as some other lumber dimensions, are having a harder time competing for logs. This is particularly true if their product mix does not also include higher value wood products. If these log prices continue, certain producers could be forced into curtailments of hours or shifts, rather than pay the high log prices.
Building permits continued on their tiptoe into the 1300s, while housing starts may have had a weather-related reduction. Unsold home inventories are down, but mortgage rates rose rapidly in the last four weeks, not the first time that has happened in the last year. While the Federal Reserve Board did not raise interest rates recently, an increase at the next Fed meeting in March is widely expected. Zillow U.S. home values continue to rise.
Digging deeper, producers tell me that the shortage of logs has many causes. There are critical workforce shortages in both logging and truck driving. There is not a sufficient labor pool to do the available work. It’s a great time for those interested in outdoor work to get a job logging, truck driving, or a similar field. There is logging to do, and no one to do it. Your help is needed, if you can pass the drug screen that most employers require.
Another way to look at today’s historic high log prices is to review older published prices back to 1989 using the industry publication Log Lines. A look back puts a very different spin on today’s log prices.
What were the log prices 25 years ago? Spring of 1993 was a time when the spotted owl controversy was raging and President Clinton convened the Northwest Forest Summit in Portland, an attempt to resolve the controversies surrounding federal land management at that time. At the same time, log prices spiked, reaching $909/MBF in May, with four months from April to July over $800/MBF ($870, $909, $855, and $817, respectively), an average of $863/MBF. The pattern repeated itself in 1994 with three months over $800/MBF. So far this winter we have just two months over $800. This month’s price of $863 is coincidentally the same as that 4-month average in 1993.
When inflation is taken into account, the $863/MBF average in 1993 makes today’s same $863/MBF price seem cheap. According to the Consumer Price Index measure of inflation, $100 in 1993 is worth $170.70 today. Thus, an $863/MBF average log price in Spring 1993, would be worth $1,473/MBF in today’s dollars. During almost the same time period of older records, from 1996 to 2018, Zillow’s average national home value has increased from $100,000 in 1996 to $206,300 today, more than double. In other words, home prices have increased more than the Consumer Price Index, but during that same time log prices, and the corresponding lumber prices, have stayed relatively constant.
There is no argument for wood quality of 25 years ago being higher than today’s largely industrial fast-grown logs, because Log Lines actually quoted separate prices for old growth and second growth logs in the 1990’s. The prices quoted here for 1993 are the second growth log prices. Old growth logs often commanded a premium of $150-$200/MBF higher, according to Log Lines.
The gap — between today’s log price of $863/MBF and the inflation-adjusted price of $1,473/MBF for 1993 logs today — translates into a wood products bargain for homeowners who want to build with wood now compared to 25 years ago. Not only is the wood relatively cheaper, but it is a lower portion of the total home cost compared to 25 years ago.
Stay tuned, and we will see next month how much the log price reacts. Is it going to turn out to be a spike, as happened in 1993, or a more level price pattern?