If you haven't been involved in building or remodeling your home, you may not have noticed this, but the price of wood has been on quite a tear. Lumber prices have surged more than 50% overall in the past year, while wood panel prices have increased more than twofold, nearing record levels.
Frequent patrons of Home Depot
What's driving these increases? In part, it's strong demand from busy homebuilders, such as Toll Brothers
New home construction aside, even remodeling has been booming. Americans spent some $130 billion in 2003 on remodeling, up from $105 billion in 2000.
The rising price of lumber has helped boost earnings at timber enterprises such as Weyerhaeuser
A CBS MarketWatch article notes that as homebuilders have acquired each other and consolidated, they've been able to command better terms from suppliers -- while we individual homeowners have not: "Building-products retailers were able to boost margins on products sold to homeowners by 1.6 percentage points, to 24.2%, from 1997 to 2002. But the margin increase on sales to homebuilders was just half that at 0.8 percentage points, to 16.5%."
Indeed, even the home-improvement retailers have consolidated. In 2002, the 50 largest businesses took in 48% of total sales, while the four largest generated 36%. The two largest dealers alone -- Home Depot and Lowe's
The upshot is that as long as lumber prices keep rising, forest-related companies will likely continue to benefit -- unless they rise to levels where demand drops. Meanwhile, we homeowners contemplating improvements involving lumber would be smart to boost our cost estimates considerably, factoring in expected continued increases in the cost of wood.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.