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Cost is through the roof

A sharp increase in plywood prices is rattling the construction industry and leaving consumers with higher costs for new houses and home-improvement projects.

Some prices for plywood and other wood-type boards used to build and renovate roofs, floors and walls have doubled since the spring, according to industry figures. Experts blame the increase on a short supply of plywood and stronger-than-expected summer demand for new homes as mortgage interest rates hit historic lows.

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The weak supply is owed to a collection of factors, including the summer's wet weather, fires in the West and consolidation among wood mill operators after years of depressed plywood prices. Also, a large government purchase of plywood that is headed to the Middle East for use by U.S. forces in the region has created some panic buying among suppliers, experts said.

"These are true commodities," said Shawn Church, editor of Random Lengths, a Eugene, Ore., newsletter that tracks the industry. "They respond quickly to supply and demand if they're pulled one way or the other. But they're short-lived, and the steep pitch that we see on the way up looks very similar on the way down."

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Builders estimate that the price of constructing a 2,500-square-foot home has increased by $2,000 or more because of the added costs. Most builders have been forced to shoulder the increase for homes they sold before the prices spiked. But builders and lumberyard owners said they have no choice but to pass the increase on to consumers.

"It's creating quite a panic," said Mark Somerville, purchasing manager for Ryland Homes in Maryland. "My take on it from what I've gathered from my buyers is that pricing has been depressed for so long, and right now demand is so high because the building industry is going so well."

A composite index of the cost of plywood reached $516 per 1,000 square feet Sept. 5 - a 100 percent increase from the first week in July, according to the industry newsletter and the Foundation for International Business and Economic Research in New York.

Construction boom

Other lumber costs haven't increased as much, experts said, because plywood and oriented strand board - the sheets formed from wood scraps and resin - are some of the most popular construction materials.

Mill operators such as Georgia-Pacific Corp. said builders kept supplies tight as summer began, in case demand for housing lessened. But when mortgage rates hit 5.21 percent in June - the lowest level since recordkeeping started in the 1950s - the construction boom continued.

That boom, coupled with the wet weather and fires in the West, pushed up prices because supplies were low. Also, plywood prices have been depressed during the past two years, forcing mills to close in the past year. Meanwhile, plywood production slowed.

"Inventory was kept low due to the weak economy," said Robin Keegan, a Georgia-Pacific spokeswoman. "Once demand for housing increased, the wood was in short supply."

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The buzz among builders and others in the industry also has focused on a large government shipment of plywood this year to the Middle East for U.S. troops to build tent flooring, fences and other items. But most experts said those 766,500 sheets were a small portion of the overall supply of plywood.

"We have not purchased any more wood for Iraq than we did for Operation Desert Storm," said William Ernst of the U.S. Defense Supply Center in Philadelphia, which buys products for the military. "We are shipping lumber to build the flooring for tents and fences for compounds. It is for troop support only."

Still, industry experts said the shipment had an impact on U.S. prices.

"It tended to have a profound effect on the market" because of the timing in the peak building season, said Church of the Random Lengths newsletter.

Maryland plywood suppliers said they have been fielding calls from concerned builders in the past few weeks as the prices keep climbing. Mark Hunt, location manager for Builders FirstSource in North East, said the same plywood that was fetching about $7 a sheet in June is now commanding more than $16 a sheet.

"Somebody has got to look into it," Hunt said. "Prices go up and prices go down, but not like this."

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Supplies are so tight that major retailers such as Home Depot have been approached by independent distributors who want to buy large quantities of plywood. Don Harrison, a Home Depot spokesman, said the company has declined those requests so as to ensure it has supplies for its regular customers, who typically are do-it-yourselfers and small contractors.

The chain also stocks its stores on each coast with more plywood this time of year because of the hurricane season. Costs for some of the chain's plywood has doubled in the past two months, Harrison said.

Forecasts at odds

Builders said consumers can expect to be paying the higher prices for the rest of the year, though experts predict prices will revert to normal soon. Interest rates have increased steadily since June and likely will cool the housing market, according to most economists.

"I think the price will peak out in the next few weeks," said Mike Carliner, an economic analyst for the National Association of Home Builders. "When the interest rate fell to an all-time low and people began building houses, suppliers could not keep up with the demand. This created panic buying."

Freelance writer Rebecca Boreczky contributed to this article.


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