Home improvement gets cheaper

New bargains appear almost daily in the lumber and plywood aisles of local hardware stores.

Prices are dropping so rapidly for some items that consumers can find multiple markdowns in the same week.

At Ziggy’s, a Spokane-based hardware chain, a sheet of plywood costs 40 percent less than it did a year ago. Prices for 2-by-4s have also dropped by 40 percent. Waferboards, meanwhile, cost 60 percent less than they did a year ago.

It’s a great time to be replacing a deck or embarking on a major construction project, said Reid Ziegler, part owner of Ziegler Lumber Co., which operates Ziggy’s.

But it’s not a very secure time to be a mill worker, he noted.

Prices have sunk to 10- to 15-year lows for many wood products, prompting a wave of short-term mill closures throughout the West.

At Bennett Forest Industries’ mill in Grangeville, Idaho, most of the mill’s 160 workers were told to stay home this week. The mill has also stopped accepting log shipments, which affects another 140 loggers and truck drivers.

Demand for wood products has been slowing for six months, and it hit a “free-fall” in the last six weeks, said John Bennett, the mill’s chief financial officer.

“We were hoping for a softer landing than what we’ve been getting,” he said.

Analysts attribute the steep decline in prices to a cooling national housing market.

New-home construction hit record highs in 2004 and 2005, with more than 2 million new-home starts in both years. Mills geared up to meet the demand with record output. But housing starts have dropped by nearly 8 percent this year, creating excess inventory and driving down prices.

“These are commodity markets,” said Shawn Church, editor of the wood-products newsletter Random Lengths. “It doesn’t take a lot to overbalance and tip the market.”

Western mills, which account for about 30 percent of the lumber sold in U.S. markets, began cutting back their production earlier this year. But output from mills in the South and imports from Canada continued to rise, said Butch Bernhardt, spokesman for the Western Wood Products Association.”It created a very strong downward pressure on prices,” he said.

The delay of a new trade agreement with Canada may have also depressed prices, Church said. The agreement requires Canada to collect a 15 percent border tax on lumber exported to the United States. It was supposed to take effect Oct. 1, but Canada delayed implementation, leading to accusations that Canadian mills were trying to get as much cheap lumber over the border as possible before the tax kicked in, Church said.

At the moment, “the market looks particularly bleak,” he said. “We still have the winter months to weather, and the prospects for early 2007 don’t look great.”

Analysts predict that the housing market may not hit bottom until mid-2007 or later, Church said.

That doesn’t necessarily mean that lumber prices will drop through next year, however. At some point, mills will cut back enough production to force prices to rise again, Church said.