Lumber prices - a source of contention between the forest industry and home builders - rise when housing starts increase, a new index prepared by the National Forest Products Association shows. The peak in lumber prices came in 1973, following on a record high period for housing starts.

"Major changes in price levels are almost always the result of changes in home building activity," said John Modnch Jr., director of economics for the association. "When housing starts are up, lumber and plywood prices rise, because demands is strong. When housing starts are down, demand for wood products falls off and lumber and plywood prices deop."

Robert J. Sheehan, director of economic research for the National Association of Home Builders, said that lumber prices have been high recently in line with a spurt in home building in 1976. He said that the October wholesale price index for all commodities and construction materials was lower that that for softwood lumber and plywood.

"Only the index for bituminous materials, among all construction material was higher in October. And, of course, that's oil-related," Sheehan said.

However, Gordon Smith, an executive with the Miller & Smith firm, builder of a number of houses in this area noted that lumber price figures declined slightly in recent weeks, in line, with increasing rates in the bond market, which he termed a precursor of continued inflation. "Any inflation means higher interest rates hut [WORD ILLEGIBLE] buying," he added.

Delvin Lumber and Supply in Bethesda, a firm that supplys area home builders, is selling small, standard lumber pieces used by homeowners for 10 per cent more now that it did a year ago. Joseph Hallett, a buyer and pricer for the Devlin firm, said that an 8-foot length of 2-by-4 hemlock fir now retails for $1.47, compared with $1.33 a year ago. In 1975, a 14-foot-length of 2-by-10 lumber sold for $726; today it costs $726.

Speaking for the forest industry, economist Muench pointed out that housing provides is the largest single market for wood products, consuming about 50 per cent of the lumber and plywood used annually in the U.S. Single-family houses are the largest users; lumber and plywood are used in the frames and skins of 90 per cent of those units.

"This market was very strong in 1976," added Muench. "It was the second highest on record for single houses."

One forest industry economist also suggested that homeowners and builders can can anticipate changes in lumber and plywood prices and plan for them. These products are traded in a commodity auction market, where "changing price patterns are a fact of life," he said.

However, economist Sheeban - speaking for the organized home builders - said that it is tough for a small volume builder to maintain a lumber supply as a hedge on the market, or to deal in "futures" as advised by Muench.

"Any further increase in lumber prices will hurt," said Sheehan.

But Smith, a local builder of above-average volume, said his firms reviews all costs every two months and attempts to make price adjustments for rising lumber prices. He agreed with Muench that there is some advantage to getting a long-term commitment from a supplier but said that it's difficult to keep by either party when prices rise or fall drastically.

"In our operations, not unlike some others in this area, we buy finished house sections from panelizers and usually work on contracts of a year or six months. That's one form of hedging, as we see it," Smith said.