The COVID-19 pandemic is sparking an unprecedented boom in housing sales and remodeling across the country as many Americans seek more space in which to live, work and learn at home. The historic levels of consumer demand over the last year has pushed finished lumber prices to all-time highs and Georgia’s massive timber industry that employs hundreds of thousands of people is struggling to adjust. The latest Georgia Today podcast with guest Ryan Dezember, a reporter at The Wall Street Journal, explores the lumber boom's impact on the state’s critical timber industry and its growers, and what all this could mean for home prices. 

RELATED: Despite Lumber Boom, Few New Sawmills Coming

TRANSCRIPT

Steve Fennessy: This is Georgia Today, I'm Steve Fennessy. Like millions of other Americans, you've probably spent a lot of time at home during the pandemic and chances are good you've also done a little home improvement over the last year. The remodeling market and housing sales are booming, and all this demand has sent the price of lumber and other wood products to all-time highs, which should be good news for tree growers across the South, right? Wrong.

Georgia tree grower Wanda Barrs: The landowner, us, we haven't benefited from the increase in the price of lumber.

Steve Fennessy: So who on the lumber supply chain is benefiting from the pandemic building boom? How is all this affecting Georgia's critical lumber industry? For this episode of Georgia Today, I'm joined by The Wall Street Journal's Ryan Dezember. He covers housing, timber and raw materials for the Journal. So, Ryan, I'm relying on you to help me understand what in the world is going on with the price of lumber in the United States. On the one hand, costs were skyrocketing there for a while. They were at record highs and builders, they couldn't get raw materials, homeowners were waiting around for jobs to get finished, for jobs to get started. And so I'm thinking this is all probably a great time to be in the business of growing trees for lumber. So why isn't it exactly?

Ryan Dezember: The simple answer is there are a ton of trees and they're ready to cut right now. A lot of trees are the same age. And, you know, we had a huge housing bust that hit its nadir about a decade ago.

[News tape] FRONTLINE, PBS: We learned today home foreclosures in the last three months ... "The story begins in the spring of 2008 after the housing bubble had burst." ... home prices were at a record high just two years ago. "Wall Street had gambled heavily on home mortgages, especially risky ones." ... fell 8.6 six percent last month ... foreclosure filings on 303,410 ... "What if there were a run on any of the Wall Street houses?" And shaky home mortgages are triggering fears of a financial meltdown on Wall Street. "Everybody made tons of money in ‘05, ‘06. "By ‘07, the party was over."

Ryan Dezember: And in that 10 years, up until pretty recently, we weren't building a lot of houses in this country. And the trees just kept growing. In Georgia you're talking slash and loblolly pine. Those trees usually get to be the size to make lumber and saw timber after about 25, 30 years. And they were ready to cut right around the time that the housing market crashed. And now we have sort of a tremendous glut of — of pine trees that are ready to become two-by-fours and other boards for construction. So that's pushed down the price that mills have to pay for their raw materials, for the logs. That just led to a buyer's market for logs.

Steve Fennessy: You said that a lot of the — the pine trees that were — that are — maturing now, and in the last 10 years, were planted roughly 30 years ago. Why were so many trees planted then?

Ryan Dezember: You remember the Farm Crisis from the ‘80s?

[News tape] Iowa PBS: The Farm Crisis of the 1980s accelerated a long-established trend of farmers leaving the land and farms being consolidated.

Ryan Dezember: And one of the responses of the federal government was to take some of the farmland out of rotation. Landowners, they said, hey, if you plant native grasses or trees, we will pay you, we'll pay you a little bit every year to grow trees on your land and stop growing soybeans and flooding those markets. And a lot of farmers in the Southeast took them up on that offer. And it's resulted in a very unusual market distorting of trees. In some cases, there's landowners that have trees that basically aren't worth being cut right now.

Steve Fennessy: Well, I'm confused because, you know, you go to Lowe's or Home Depot and the price of a two-by-four is exorbitant compared, anyway, to a year or two years ago.

Ryan Dezember: Yeah. So what's really happening is there's a pinch point in the supply chain and that's at the mills. Originally when — when the first colonists came, the South was covered in a primeval forest of longleaf pine that went from, say, Virginia down to Florida and across into Texas and Oklahoma, and that got nearly logged out, basically, to grow food and to supply wood around the world and to build the early cities and the railroads and all that. The British Navy availed itself to the pine trees of the South. And starting in the 1930s, we started to replant the South to develop the paper industry. In more recent years, the value of the timber has been — has come up and been more desired; Southern pine is great for building decks and fences and it's very strong. So people use it in apartment complexes where strength is paramount, on sort of bottom floors. And over time,  the importance of lumber has — has gone up to the South's economy. So lately we lost a lot of independent mills. Some mills just folded up. They weren't efficient enough to compete. They sold them off to the big companies from Canada. And that has helped give the mills pricing power.

Steve Fennessy: What was the situation going into the beginning of the pandemic and how did the industry imagine what was going to happen, and what actually did happen?

Ryan Dezember: Before the pandemic — most of us have trouble imagining what it was like — it looked like the housing market was finally coming back. Well, then all of a sudden, here comes COVID-19. Everything shuts down. A sawmill is not a work-from-home type of business, right? You have to be there, so to speak. And they had to shut down just like all the other businesses. It was a great period of uncertainty. And one thing that a lot of people felt certain about was that Americans weren't going to be rushing out and buying new homes. And then the opposite happened. People did go out and buy homes. A lot of people were looking around in their apartment buildings and cities saying, “You know, maybe I don't want to share a building with a bunch of other people, if there's a pandemic. Maybe if I'm going to work from home, I want to have a home office and a yard for the kids to play in and somewhere for the kids to have their home schooling.” You have people stuck at home who are like, “You know what? Let's finally build that deck. Let's redo the kitchen.” And they're running out to Home Depot and buying wood. And then you have all these restaurants and cities across the country that are doing something that they had never done before, which is build decks and patios en masse. And the sawmills and the whole supply chain were not prepared for that. And that was a tremendous shock of demand. The mills have had this very unexpected and very sharp surge in demand for for wood products during the pandemic. No one saw that coming. No one in the industry. Homebuilders didn't see it. Lowe's and Home Depot didn't see it, but it happened and it sent the price on just a crazy arc this year.

Steve Fennessy: How high were they getting compared to historical averages?

Ryan Dezember: So we had a big run up last summer and it sort of fizzled out in autumn, which is sort of a seasonal thing you expect because big swaths of the country stop building houses and decks come autumn. And then in the winter it started moving up again and it was very unusual and it just kept going and going. And by May we got up to a lumber future, a thousand-board-feet of wood in a two-by-four dimension topped out about $1,700 dollars. Now, to put that in perspective. When we were seeing 16 and 17 hundred dollar lumber, the average should have been around $360, $380. So you're talking more than four times the normal price for two-by-fours.

Steve Fennessy: It's such a fundamental part of the economy, home building and renovations. And so what happens with builders, with — with renovators?

Ryan Dezember: Well, builders kept going. And one thing that really helped mask this all was the Fed keeping interest rates at historically low levels. So builders were able to pass along those costs for a while.

[News tape] FOX54: With our area constantly growing, that means a price increase for homes is happening here, too.

Ryan Dezember: The market was so hot that people were just paying up. But around May and June when prices got really out of hand, you started to see builders do really unusual things where they would stop selling houses on spec, saying, “OK, you want to buy a house in our subdivision, we're not going to give you a price or sign a contract until we get the studs up or till we're ready to put drywall or till we've got the foundation poured,” because they were having such a difficult time predicting their costs.

[News tape] 11Alive: Like Landed Gentry, which is building about 60 homes in this new development in Skagit County. "There were a few instances where we did not make a profit on the houses." And that's why Landed Gentry had to change its business model. They can't afford to do pre-sales anymore. "So what we do is we have a lot holds or lot reservations. Once we're close enough to completion, we can actually release them for sale."

Steve Fennessy: So how is the industry responding in terms of sawmills, which had initially in the early days of the pandemic scaled back their work? How have they responded and what effect is that having now on the market?

Ryan Dezember: The lumber industry really ramped back up. They're sawing as fast as they can. We saw some — some decline in the repair and remodel business because, think of what we all did: The pandemic eased, people got vaccinations, they booked vacations, they went to baseball games. They started going to restaurants again, spending money outside of the home. So we've seen demand cool down there a little bit. You know, the flip side is apartment builders are back because they — they canceled projects. Now we're starting to see some of those building permits get pulled. It's back to a precedented range that sort of fits with what we think of as a price for lumber. But it's still on the high side of history.

Steve Fennessy: I know you spent some time talking to growers. And what did you learn from them? What was their — their take on everything that's been going on in the last year and-a-half or so in their industry?

Ryan Dezember: Growers have been waiting for the home market to come back for about a decade, right? What really has surprised people is that the housing market has come back so strongly and that what they call stumpage prices are the prices for the timber. The logs have not followed them.

Earl Barrs: That's in constant dollars. That's not taking into account inflation and other things that have gone up to grow those trees.

Ryan Dezember: Imagine if you were paying $7 or $8 a gallon for gasoline in your car and then you picked up the newspaper and you're reading about oil drillers going bankrupt. That's sort of what's happening. Georgia in particular. You know, Georgia is about two-thirds covered in trees and individuals and families own like half of that. We're talking about people who own 40 acres, 100 or 10,000, even — family sort of businesses. And a lot of growers are at a crossroads of is this a business to stay in and to put my family and my heirs into?

Earl Barrs: Are we playing on a level playing field? Are we able to put our trees into a truly competitive marketplace?

Steve Fennessy: Next, why falling lumber prices won't necessarily mean cheaper homes. This is Georgia Today. I'm Steve Fennessy.

[BREAK]

Steve Fennessy: You're listening to Georgia Today. I'm Steve Fennessy, I'm joined by Ryan Dezember. He's a reporter from The Wall Street Journal who covers raw materials and the timber market. Ryan, in anticipation of our conversation, I texted the other day with my brother, who's a homebuilder in North Carolina, and he said that prices coming down has certainly helped the people who had been putting projects on hold are now jumping back in. And so now availability is an issue. Is that — are you seeing that nationwide?

Ryan Dezember: I would say that that's pretty accurate for what we hear from builders. You're still going to pay a lot and you might not get what you need.

Steve Fennessy: Is the government getting involved at all in terms of trying to incentivize less planting of timber or to — to keep them from being cut down?

Ryan Dezember: The government does pay people to plant longleaf and to grow longleaf pine, which is the original sort of dominant species throughout the South. Government programs these days are really focused on getting people to restore that habitat. There's also carbon markets that are emerging. Companies are under great pressure to show they're acting with the environment in mind and trying to make up for the pollution that they generate doing business.

[News tape] CBS News: Give me some examples of how companies are doing this. So they're purchasing carbon offsets oftentimes. Jet Blue is one of those places doing it. Delta does it to some degree. British Airways is going to do exactly what Jet Blue is doing, which is offset their domestic flights.

Ryan Dezember: And one of the things that they're doing now is paying people to not cut down trees, to leave their trees growing and thus absorbing carbon from the atmosphere. And they then turn around and take credit for that carbon being stored in the trees. So there are some options sort of getting away from that that could take some land sort of out of that rotation.

Steve Fennessy: Can you quantify how much of Georgia is devoted to — to pine tree harvesting? I mean, is there — is that going up? Has it gone down?

Ryan Dezember: You know, I think it's been pretty stable over the last few decades and so forest covers roughly two-thirds of Georgia. Georgia has very little federal and state forest. Most of it is in private hands and can be cut down. The state brings in something like eight or nine hundred million dollars a year in tax revenue. The state says it's got about 147,000 jobs tied to forest products and forestry. And, you know, that goes all the way from the people growing the trees to the people who drive the trucks for the logging company, to the people working at mills or place that makes utility poles or windows. So it's a huge industry in Georgia. Georgia is to wood products what Texas is to oil. That's not going to change. Now on the margins, some people may not replant or some people may take government money and replant longleaf for habitat restoration and pine straw. That's what's interesting about the carbon market. You have two markets for the same thing. For the tree, you have one market that will pay you to cut it down and take it to the mill and you have another market that will pay you to leave it standing.

Steve Fennessy: Where's all this going? What can we expect in terms of lumber prices six months or a year down the road?

Ryan Dezember: The last time that lumber prices were this high, and we probably have 15 to 20% more houses being built now than we did then, which would signal that, barring some significant collapse in that market and in the what we call the “repair and remodel,” you know, if everything just sort of stays where it is, you would expect to have lumber prices high in this range. High for history, not out of this world like we had this summer. People don't think that's coming back.

Steve Fennessy: As prices come down, will those savings be passed on to homebuilders, to people renovating?

Ryan Dezember: Builders are not lowering their prices. Builders are continuing to push prices high. And that goes back to interest rates being so low and demand so high, they're naming their price and their term for houses.

Steve Fennessy: So their costs are going down as the price of raw materials, i.e., lumber goes down, but they're not necessarily passing those savings on to the end buyer.

Ryan Dezember: Not yet. They've had a bad decade. They've had some hard times. And so now's the time to reap profits. Kind of like the sawmills now. Everyone's sort of making the money that they missed out on and doing the business that they haven't done for years or post-housing bust. So if you go out to buy a new home and you looked at a house and a development a couple of months ago and you're going back to that development, you shouldn't expect to see the price come down. But if you were thinking about building a deck, you might get a better price this autumn than you did the spring.

Steve Fennessy: So sawmills are doing well, homebuilders are doing well, but the growers themselves are still kind of stuck.

Ryan Dezember: They're the ones left behind in this. But all these people sort of have the same conundrum. What do we do going forward? It's such a commitment to grow these trees. You know, you pay property taxes for 30 years before you get a return.

Steve Fennessy: Is it something that they see is a viable industry going forward?

Ryan Dezember: That's the big question, right? Like, OK, if I hand this down to my children, am I giving them an asset or am I giving them a liability? Right now, given the way the market is, it looks like a liability. Who's to say 30 years from now but what that would be, or even 15 years down the road? And so you have a lot of that going on where people are thinking, do we bind the next generation to this? You know, the mills probably are looking at the situation saying our raw material is low price. That's great. We're making a lot of money. At some point, though, you have to make sure that the people supplying you are taken care of or otherwise they might get out of the business. And there's also, we as a society, we're starting to look at the woods and look at trees and value them very differently. Like we don't just look at them and see board feet of lumber or however much pulp you could make or get for the pulpwood. People are looking at them saying, how much carbon are they sequestering? What are they doing for the water quality? What do they do for just shade and recreation and just general well-being? Investors are pressuring companies to act more environmentally friendly.

[News tape] CBS News: It's a bit of a shady world, or at least it was a shady world when it started out. Now it's a fairly regulated market and you have a pretty good chance of them doing what they say they're doing. But in many ways, environmentalists say that you're kind of kicking the can down the road.

Ryan Dezember: One of the easiest things that companies can do in this very challenging problem of wringing carbon from their global operations is to look at their packaging, their components and say what is made out of plastic that we can replace with something made out of paper or tree fiber? So there's a lot of research and development going on in those worlds. There's a lot of people looking at the forests as solutions to some of the environmental problems that we have, especially as we think about what humans have done to the environment in recent years. And trees are one of the things we have going for us that can clean up a lot of our messes.

Steve Fennessy: My thanks to Wall Street Journal reporter Ryan Dezember for joining us. Lumber prices have fallen in recent weeks, but housing market analysts say buyers may not notice significant savings any time soon.

[News tape] CNBC: It's also possible that this new surge in COVID cases could increase demand yet again for new homes. We saw demand skyrocket at the start of the pandemic as people looked for homes with more space.

Steve Fennessy: For more Georgia Today, go to GPB.org. I'm Steve Fennessy. Georgia Today is a production of Georgia Public Broadcasting. Subscribe to our show anywhere you get podcasts. Don't forget to leave us a review on Apple. Jess Mador is our producer. This episode's engineers are Jesse Nighswonger and Jahi Whitehead. Thanks for listening. We'll see you next week.

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