A Conversation with Glenn Bearden
In the U.S. lumber prices were up 54% year over year as of the second quarter of 2021, and this trend reflected across the globe. In simpler terms, the cost to build just about anything, but in particular homes, skyrocketed. These price increases go well and beyond normal demand surge.
To unpack this, host Maiclaire Bolton Smith sits down with construction aficionado Glenn Bearden. He peels back what’s really causing this—from the pandemic, to labor problems, all the way to the core of human behavior.
Maiclaire Bolton Smith: Welcome back to Core Conversations, a CoreLogic podcast. I am your host, Maiclaire Bolton Smith, and I’m the Senior Leader of Research and Content Strategy with CoreLogic. in this podcast, we’ll have conversations with industry experts about key topics from housing affordability, to the impacts of natural disasters on property.
Over the past year, there’s been a pricing rollercoaster in the housing market. And I’m not talking about home values, I’m talking about lumber. Houses are made of lots of small items, drywall, plywood, steel studs, shingles, copper pipe. Each of these has a specific cost. And the variations in these costs can impact a lot of things. The willingness of builders to make new homes, the amount of which a property should be insured, the cost of remodeling, the list goes on.
In the U.S. lumber prices were up 54% year over year as of the second quarter of 2021. In Canada, it was nearly 75% year over year. Price inflations that go well beyond the average impact of demand surge. So for our episode today, we’re going to dive into construction with CoreLogic’s construction expert, Glenn Bearden. Glenn, welcome to Core Conversations.
Glenn Bearden: Thank you very much, Maiclaire. It’s a great privilege to be part of your program and I’m very honored to attend.
MBS: Awesome. Okay. Well to get started today, can you tell our listeners a little bit about your background. How did you come to be an expert in the going-ons of everything in the construction world?
GB: Well, a bit of an interesting story. I’ve always had a fondness for building things. My furthest memory was around 8 to 9 years of age. I would go out to my father’s storage shedderies, kept his stools. I found scrap lumber and tried to be creative. Now granted allowing an 8 or 9-year-old to use power tools was probably not the best.
However, my father always taught me safety and more so trusted me with their use. So the biggest thing, I’ve never cut off a finger. I have all ten and toes too, but that’s what arouse my interest. I was honing my carpentry skills to the point that my father actually noticed it and began to take me to work with him at about age 11. He was a master electrician. So that’s the trade that I was being taught in the field. I was wiring entire residential homes by myself at age 14, with the oversight of my father, of course. But I always thought medical school was where I wanted to end up.
However, the call of the building industry continued to interest me to the point that I made it a career. So instead of med school, I ended up in the construction industry and I can honestly say I have absolutely no regrets doing so. But learning to read and understand blueprints, this pushed me into making my own designs.
So although I was not a licensed architect or engineer, I did have a very close friend of mine who was a civil engineer. I would develop very detailed drawings. He pushed me to try to get into that field because often he would take my drawings and sign off on them for me to build those. So it was really great. And having the ability to have someone behind me to also expand my knowledge and having an expansive imagination really helps when you’re designing things.
But I wanted to learn all that I could in every aspect of the building industry. And I’ve been involved from commercial, residential products, expanding to commercial buildings for the United States Air Force base. So my experience is deep in the industry because I love this profession.
MBS: Wow. And that’s why you’re here today Glenn and I’ve got to tell you, we love a good story here on Core Conversations and that’s one of the better ones. So I really appreciate you sharing that with us and really helping just establishing why you are our guests here today. So I want to dive in and we alluded to it in the opening introduction. There’s been a lot of hubbub in the construction world. There’s lots of changes, lots of spikes, demands, and prices. Can you recap what exactly is going on?
GB: Sure. This is a bit difficult because it is quite detailed. When you look at the expanse of things. When we look back on any significant event in history, I guess, that affects the construction industry. There typically is a catalyst behind everything that happens. What you find are contributions from multiple sources, one of those, believe it or not is human nature, our instincts.
Most times this is overlooked. Therefore we have to look at a broad spectrum of items. We have materials, events, behavioral patterns, for instance. We are familiar with catastrophes. Often these are regionalized over a town, a state, or multiple states. So pricing is affected based on the type of damage that you have, wind, flood, freeze, whatever that might be.
So looking into what affects pricing initially are the circumference of the event that it affects, the materials involved, the current stock, or quality, and quantity of those materials. Anything that might be manufactured within the affected area that could stunt or even in production. So we also consider human behavior.
Now consider the recent events. We’re all familiar with, that items we thought would never be in high demand or short supply, toilet tissue, paper towels, water, a gamut of things, right? Human instinct was to provide ourselves and our families with these products. So we panic buy.
This was the primary cause of those shortages, creating the supply and demand interference. Now the pandemic has proven to be an unencountered event for the entire world. The US is no exception, of course. However, but now that we see the slow of COVID and the spread of it, because of the vaccines, we have a little bit clearer view of what is ahead of us, because we’re now able to look behind us, right? Eliminating much of the hypothesizing that has been going on.
So what we all witnessed and what we continue to see is a domino result. The rippling effect analogy to me is very appropriate here. A little drop of water in a very confined area. What do you have? Well, it tends to have a large initial way, but then it ends quickly, right? Expand that area, then you have an initial impact.
However, the ripple effect reaches greater distance and becomes more profound the further out that it expands. Eventually waning, if it’s not stopped directly. So the expanse in this case encompasses the entire world. Almost all building materials have been affected in one way or another. Many materials are not produced in the United States, right? And many products that we use require subsequent materials to create a finished product, such as plywood, composite window frames, glass insulation, the list is enormous. And then add in the human element that we mentioned, and we ended up with a perfect storm.
MBS: Yeah. And that’s really what we ended up with this pandemic. It was a perfect storm of so many things that did go wrong. And I love that analogy of the ripples. And if we think of throwing a pebble into a lake and those ripples just continue out for really long distances. And that’s what we’re talking about here is the knock on effect of things that have happened globally because of one pandemic that impacted the entire world.
So I guess when we look specifically at construction, saw this is powerful course, I mean, we talk about disasters. We know that there’s demand surge when a disaster happens, and there’s more demand for something like lumber. But in the case like we are right now with all of these things going wrong, at what point should we be concerned?
GB: Well, we’re always concerned, that’s human nature, again, bringing that element into. But as do other analysts, and I believe, and even our research indicates that it appears the worst may actually be behind us. Now we’re not expecting a sudden change to pre-pandemic conditions with material, with housing, with labor. But we can take some comfort in knowing that science is now directing the COVID virus, with vaccines, cautionary measures that are in place. And there’s been a noticeable decrease in market pricing. And it all seems to coincide with the pandemic and how things are beginning to wane. Again, with the human element, consumers are going to pay more because suppliers are better positioned right now to earn a little bit more with the falling prices. So they tend to decrease more slowly for the consumer, unfortunately, but it appears that better times will be ahead for us.
MBS: And we’re going to dive into a lot of that as we continue today. But you triggered a few thoughts there. I want to talk a little bit about, you mentioned this, perfect storm. I want to get into, the pandemics been here since early 2020, when did we start seeing this trends? When did it begin?
But we also alluded to with CAT events, with disaster happens, a home is destroyed. Therefore the surge of materials is needed within a region. The pandemic has been really different. It’s more about supply and demand and people wanting, they want more bigger homes. People are working at home, they need more space. People are, they all of a sudden don’t like their kitchen and they want to do a renovation. Because everybody’s, frankly, we haven’t left the house in a year and a half.
So I think there’s been a lot more demand. So I want to get into a couple of things there. I want to go, first of all, when did we start seeing this happen and how is this different than a CAT event because of the environment all of us we’re in because of this pandemic?
GB: Well, that’s a great question. Maiclaire. One of the things that I examined and have been looking at are of course, historic situations. What happens every time there’s a change in government, things change. It’s without any thought process it is going to happen. When you have a change in government, then all of these major departments that have world effects also become changed because their leadership is different.
So thinking back about 2018, there were tariffs imposed upon Canada and it had to do with lumber and steel, right? This had an effect on those prices at that time prior to the pandemic. So we were seeing slight changes in the market, but you could look back at those and say, historically, that is expected. But now we bring the pandemic into it. And every thing that I could incorporate into why, answering that question, why, this went up, why? That went up, why? This changed, why? At the epicenter was COVID-19.
So when it began on the scale that we see it, would have to be the introduction of the pandemic. And what’s happening right now is we have pretty much been in a panic mode, the entire world, and the building industry specifically. So I think that what we’re seeing right now is a bit of a slowdown, but everything does point and that was the issue.
MBS: That’s interesting. And I appreciate that context because I think a lot of people think of this in, well, the pandemic started, this is what started everything, but looking back further at what was happening with trends prior to the pandemic is an important part of the story that I don’t think anybody’s really talked about. So I appreciate that context, but then just really the pandemic amplifying everything because of the demand that came with that.
So, okay. I want to zoom in and talk specifically about lumber because lumber has been a hot topic in the industry, in many industries, frankly. Not just in the construction industry, and the housing industry, and the insurance industry, in many industries. So as the prices continued to grow exponentially, it slowed construction on homes. The nation was already suffering from an under supply of properties. And then we started hearing about lumber shortages. Is there really a shortage of lumber?
GB: Interesting. And this is not the answer anyone wants to hear. Yes and no.
MBS: All right.
GB: Well, let’s look at the process. Timber gets harvested from the forest. You make rough cut lumber out of it, finish it, you send it onto the consumer. Now I have personally contacted saw mills. I know people who are in that business who have told me specifically, they have no shortage of timber analysts were forecasting and anticipating that the housing and lumber industry was going to take a massive hit due to the pandemic, right?
Things are going to crash with that information and not wanting to have building materials, just sitting on a shelf, sawmills closed. Those that did not close cut back on their production, practically 30% in some cases. Many initiated new builds because what happened, interest rates fell. Let’s build a new house. DIY projects started expanding. People had more time. In fact, they had more money because they weren’t going out and spending that money.
GB: So with all these new starts, prices steadily began to increase. Contractors are seeing this and therefore they began to buy in bulk. So when you put all of this together, these contributing factors, it started making prices go up, and up, and up, and up. And all contributing to what? A demand that could not be satisfied.
This put producers in what, I don’t know if it’s been heard before, but a force majeure. An unforeseeable circumstance that prevent someone from fulfilling a contract. And if you cannot fill the contract, therefore you create what a shortage. So we have the material, but it also began a domino disaster. Once you interrupt one core production, everything else becomes affected the ripple effect, remember? So now we have plenty of raw materials. Yes. But we don’t have enough of them in the finished state or ability to transport what the demand is currently.
MBS: That’s so important. And I’m glad you touched on that because that’s not something that we’ve typically heard about. We’ve heard that there’s this shortage, but putting it in the context of the raw material is actually there, but in the capacity of people being able to use it. Because of this ripple effect of the impact, that’s where the breakdown almost just happened.
And what’s made it more difficult to get lumber because so many people are doing all of these extra projects and all of these extra things are happening. I mean, I know in our house, my husband found tons of things to build during the pandemic, just because there was nothing else to do. And I know that we are not alone when we look at people around us.
GB: Didn’t we all?
MBS: Well, I didn’t, but every household had someone I’m sure. So you did mention a little bit that this lumber prices are starting to stabilize. We’ve seen things come down a little bit. What can we learn about this? And will there ever be a normal again? Is this a new normal, like that word I think is so overly used right now, because we’ve been in this pandemic situation that people are like, “Oh, we’re going back to normal, but this is a new normal.” Does normal even exist?
GB: I have heard that a lot. I really have. And I think that the most important lesson that we could learn is to try and not chase our tails. We are creatures of instant gratification, no doubt, right? We want immediate resolution to a problem, but immediate resolution to a problem that is this massive, is not reasonable.
So we have learned, and history supports, that when disaster occurs, things are always difficult at first. However, things do typically tend to relax at some point, maybe not always to what we felt to be normal, but close to it. Will the high prices of material, the shortages of housing, all that remain exactly where it is? We’re seeing a trend that says no. Lower prices and more inventory.
And we’re going to see pre-pandemic pricing at what point? Probably never. However, we will have somewhat higher pricing on materials, but not a substantial amount because if we had that and it remained where it is, it would cripple our economy. That will likely though with the moderated higher pricing, be what we could call our new norm.
MBS: Okay. That was great. I really appreciate that. And it leads me to think too, that many of our listeners here at Core Conversations are in some aspect of the property industry, whether they be real estate, insurance, or mortgage lenders. Why is this stuff important to them? Why do they care? Why are these costs so important to whether they’re mortgage lenders, insurers, real estate agents, and how important is it for them to understand what accurate pricing is?
GB: Well, I think the latter of what you said, accuracy. I think that is probably the key. We all should care because this directly affects us individually, and as families, and as business owners, if we may happen to be that. It affects the economy directly. Now to necessitate the need for accuracy is very important because if we do not have accurate assessments of materials, housing cost, and the like, then if you’re in the market to sell your home or purchase a new property, it’s only going to cost you money one way or the other.
If you’re looking to sell and you don’t have an accurate price, you could lose money on that. But if you’re looking to buy and the pricing is not accurate on that, you may pay too much on that. So what we see is that the insurance carrier is going to demand that the property be insured for its replacement costs, that counts for the accuracy of it. The real estate agent is in a position to represent that property faithfully, ethically, they should be doing so.
GB: So if the cost is not accurately assessed, then again, I go back to the ripple effect. It applies and everyone will be affected. And more so our national and global economy will be affected by that. So accuracy to me is the key.
MBS: Yeah, definitely the key. And you hit a chord when you talked about the insurance aspect part of it there. Because I know I’ve heard rumblings just from friends, honestly, in the last couple of months of what the wildfire risk being so high, across much of the US right now. And I mean, Canada is on fire as we speak as well too.
There’s all of these fires because there’s this drought and everything’s been so dry, we haven’t had any rain. It’s been so hot and there’s this huge risk of wildfire. And then there’s the concern of, is my property accurately insured that if I lost my property, would I have the insurance to be able to rebuild?
So I think that’s one that’s super important to people right now, is understanding the reconstruction cost value, which we’ve done another podcast on the importance of those values a couple of months ago. But that’s why it’s so important of understanding these construction costs is getting that value appropriate. That if something devastating were to happen like a wildfire devastating your home, you do have accurate, appropriate insurance to be able to cover your property.
GB: And as you mentioned, we have also found that in the not recent past, some people were under-insured. That is devastating.
MBS: That’s really devastating and really hits home why these values are so important and why when there’s volatility in them that we’ve seen in the last year and a half or so. Why it is even more important and really why we’re talking about it today. So, all right, I kind of want to wrap up, but I kind of want to keep talking to you forever because this is so interesting. And I know so relevant to so many people.
But if we look at construction contractors and insurers, we’ve talked about how important this is. What can we do to be resilient in the face of all of these changes? I like to talk about resilience a lot when we talk about the disaster world of, it’s not just rebounding from something, but being prepared for it and getting through it and being stronger in the end. That’s really the concept of resilience. How can we think of that from the fluctuations in construction costs. And what can professionals do, whether they be construction contractors, insurers, or anybody in the housing industry, to be more resilient with these changes that are likely to happen again, at some point.
GB: It would be fabulous to be able to tell everyone don’t panic. That, but we know in a real world scenario that that’s not the case. So in short, and this is going to be a strange answer to give, but I’ll explain. Be open-minded, and more importantly be patient.
We are now able to see with the slow passing of COVID-19 behind us, a small window into the past, right? Our human instinct, the instant gratification to purchase a home, simply because interest rates fell to a level that I can purchase. That makes a home better available for me, causing many to pay more for property than it may actually be worth. Panic buying, what we see with contractors, with materials and housing. This creates a bubble, that eventually is going to burst. And it may put people in a worse place than had they been patient.
MBS: I think that’s a really good place to end. And I’m glad you went there because we’ve had this conversation before with Dr. Frank Nothaft, our chief economist about how the interest rates were historically low. And that led to this rapid buying, and people wanting to buy properties. And it led to this bubble. But yes, if people rushed to buy things because they could, because of these historically low rates, but sometimes patience pays off. And maybe that’s our lesson learned through this little bit of a bubble in this crisis that we did have.
So Glenn, this has been so interesting and so relevant in today’s environment, today’s market. I know a lot of the questions that we hear from our clients are what is going on with construction costs. Even my best friend called and said, “I want you to talk about construction cost prices, because everybody cares about this. So can you do a podcast about that?” So I’m glad we were able to do this. So thank you so much for joining me today on Core Conversations, a CoreLogic podcast.
GB: Well, it’s been extremely enjoyable and your questions were so relevant to where we are today and what is on everyone’s mind. So again, it has been an honor for me to be your guest.
MBS: Wow. Happy to have you here Glenn. So thank you for joining us today. And for more information on the property market in the housing economy, please visit us at corelogic.com/intelligence.
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