Lumber Distributors
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 4,600 lumber distributors and wholesalers in the US act as middlemen between suppliers, retailers, and builders. Companies purchase stock and custom-ordered materials from sawmills, plywood and engineered wood product manufacturers, importers, and foreign suppliers and resell them to retailers, builders, lumber yards, and manufacturers. Firms may also provide engineering services or product modification such as cutting or planing wood to specified sizes or thicknesses.
Demand Tied to Residential Construction
Demand for lumber is largely tied to residential construction spending, which is cyclical and influenced by economic conditions.
Fluctuating Lumber Costs
The prices that manufacturers charge for wood products can fluctuate significantly and rapidly, driven by variability in underlying commodity costs.
Industry size & Structure
The average lumber distributor employs 24-25 workers and generates $21 million annually.
- The lumber distribution industry consists of about 4,600 firms that employ 116,000 workers and generate about $98 billion annually.
- Plywood, veneer, millwork, and wood panel wholesalers account for 60% of firms and 49% of revenue. Lumber distributors account for 40% of firms and 51% of sales.
- The industry is concentrated at the top and fragmented at the bottom; the top 50 companies account for 50% of industry revenue.
- Only 1.5% of firms earn $100 million or more annually; those firms account for 29% of industry sales.
- Large firms include Builders First Source, Forest City Trading Group, and US LBM. Some of the largest firms, like Rex Lumber, still operate regionally.
Industry Forecast
Lumber Distributors Industry Growth
Recent Developments
Sep 23, 2024 - Residential Permits, Starts Increase
- The number of building permits issued for single-family, privately-owned housing units, a demand driver for building inspection services, increased 2.8% month-over-month but declined 0.5% year-over-year in August 2024. Single-family housing starts grew by 15.8% month-over-month and increased 5.2% year-over-year in August. Single-family housing completions dropped 5.6% month-over-month but grew 8.4% year-over-year in August. The August rise in housing starts was helped by moderating interest rates, but builders still face supply-side headwinds, including labor and lot shortages and stubbornly high prices for some types of building materials, according to the National Association of Home Builders (NAHB).
- High interest rates have increased the costs for new multifamily construction and reduced property values, prompting some developers to halt or delay projects, according to The Wall Street Journal. Multifamily housing starts involving five or more units fell 21.8% in July compared to July 2023 and were down 41% from their April 2022 peak. The drop in starts follows a boom in apartment building that began during the pandemic. This year, about 610,000 apartment units are expected to come online, the most in any year since the 1980s, according to data firm CoStar. However, as financing new projects has become costlier, CoStar expects new apartment supplies to slip to fewer than 350,000 units in 2025 and 275,000 in 2026. The influx of new apartment building has created an oversupply in some regions, leading to lower property values and weak rent growth, which has reduced developer and investor appetite for new projects.
- Home builder confidence in the single-family market improved in September amid moderating mortgage interest rates, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), rose two points to 41 in July 2024. Any HMI reading over 50 indicates that more builders see conditions as good than poor. September’s gain in the HMI followed four consecutive months of declines. The HMI survey also showed that 32% of builders have reduced home prices to lure potential buyers off the sidelines, although the average price reduction of 5% was the lowest since July 2022. However, while the Fed’s recent rate cut will reduce the cost of land development and construction loans, builders are seeing increased competition from existing home listings in some markets.
- At its meeting in September, the Federal Reserve voted to reduce interest rates by half a percentage point, which would put the benchmark federal funds rate between 4.75% and 5%, according to The Wall Street Journal. Projections of fed officials’ moves suggest another four quarter-point cuts will come next year, which would bring the federal funds rate down to 3.5% by the end of 2025. However, it’s unclear to what extent September’s cut will affect housing demand. Mortgage applications were flat year-over-year in September. Meanwhile, for the week ending September 19, the average fixed-rate 30-year mortgage rate was 6.09%, down from 7.19% a year earlier, according to Freddie Mac. Even as mortgage rates have dropped, high home prices and other costs, including homeowner insurance, continue to weigh on affordability.
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