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Homebuyers' wallets hammered as prices for plywood substitute spike

By Marcy Nicholson, Bloomberg News on

Published in Business News

Americans are coughing up $4,600 more on average to buy their dream home than six months ago — thanks to a record run-up in prices for a once-cheap plywood substitute.

Prices are on a tear for those bonded wood-chip sheets commonly used as sheathing for walls, floors and roofs in new home construction. Oriented Strand Board, or OSB, has long been used as a low-cost alternative to plywood, but the product now fetches a higher price as increased demand and tight supplies lead to delivery delays and elevated construction costs in the U.S. and Canada.

"It's difficult to get, the lead times are out," said Lorne Winship, general manager at Pacific Homes, a West Coast builder specializing in custom prefabricated homes, adding that the premium over plywood is "absolutely crazy."

While the rally is hurting builders and buyers of new houses who already suffered from surging lumber prices earlier this year, it's bringing windfalls to manufacturers such as Norbord Inc. and Weyerhaeuser Co.

OSB soared to a record $729 per thousand square feet in September and held that level through mid-October while southern pine plywood prices plunged in the past month, according to lumber pricing company Random Lengths.

The engineered-wood product is at a premium to southern yellow pine plywood for the first time since 2006, according to RBC Capital Markets analyst Paul Quinn.

 

"We expect that this is at least partially due to higher housing starts given that buyers were less willing to substitute," Quinn said in an Oct. 12 report, adding that OSB is used more heavily than plywood in new residential construction.

Manufacturing OSB requires a different process and equipment than making plywood, meaning lumber companies can't switch over production to address changing markets.

Tight supplies have caused delivery delays for smaller builders like Pacific Homes, owned by Winnipeg-based All-Fab Building Components Inc. Winship said he's being told OSB deliveries to his Vancouver Island company will take two to three months now instead of the typical two weeks. His woes are somewhat eased by falling costs of other lumber materials.

Lumber futures have tumbled from August's record highs, though they're still up 26% this year. That's contributed to a volatile year for North America's lumber industry, with COVID-19 and wildfires causing disruptions amid escalating demand. Do-It-Yourselfers, fortified by government stimulus checks, took on home renovations during pandemic lockdowns as homebuilders broke ground on an increasing number of new projects.

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