Building Materials Cost


From: The Philadelphia Inquirer
3/27/05
http://www.philly.com/mld/inquirer/classifieds/real_estate/11211557.htm
BUILDERS' BLUES
By Alan J. Heavens
Inquirer Real Estate Writer
In spring, a lumber-mill operator's fancy turns to thoughts of the profits to be made as construction and remodeling season gets into full swing.
The same thoughts fill the heads of just about every provider of products consumed by the building industry each year.
Concrete, lumber, bricks, insulation, stone, steel and plastic (for vinyl siding) are used in great quantity in every new house and renovation job. Shortages and price increases affect everyone, from the major builder down to the weekend do-it-yourselfer.
Michael Carliner, an economist with the National Association of Home Builders (NAHB), says that whether material costs increase this year or not, builders probably will raise their prices.
"Most new homes these days are pre-sold, so last year's prices were based on what builders thought would happen, and they ended up getting squeezed," Carliner says.
The NAHB estimates that material prices boosted the cost of building a house by $5,000 to $7,000 last year. "This year, many builders are building a contingency factor into the sales contracts, although we don't think the increases in material costs will be as great as in 2004," Carliner says.
Why? Because the residential-construction industry is anticipating a slight drop in the number of housing starts this year. There is a growing belief among economists that 30-year fixed mortgage rates will increase enough in 2005 to reduce sales.
Economists had predicted that for 2004, as well, but long-term rates declined further, boosting new- and existing-home sales to record levels.
Some builders remain willing to bite the bullet.
"We have no contingency clause in our contracts," says Gary G. Schaal, vice president of sales and marketing for Orleans Homebuilders, the region's fourth-largest builder. "We do a good job pricing, and we should get the houses done in the time allotted by the contract to keep costs in line.
"If we don't, shame on us."
According to February's Producer Price Index, released Tuesday, prices for concrete products rose 1 percent last month. The price of steel dropped 0.2 percent in February from January; lumber rose 6.1 percent; and asphalt rose 3.2 percent.
Compared with February 2004, the price of steel was up 37.7 percent; concrete products, 9.4 percent; lumber, 10.8 percent; and asphalt, 6.3 percent.
Area builders interviewed say there is a shortage of masonry products, bricks, concrete products, and oil-based products such as vinyl for siding and pipes, asphalt for roads and driveways, and roof shingles.
The price of oil also factors into transportation costs. Some major builders, such as Toll Bros., have regional centers supplying materials to job sites, to reduce transport costs.
Drywall prices remain high, although supplies continue to be adequate, area builders say. The typical 2,272-square-foot new home uses about 8,100 square feet of drywall for walls and ceilings.
In the fourth quarter of 2004, gypsum wallboard manufacturer U.S. Gypsum reported a 25 percent price increase over the fourth quarter of 2003, for an average price of $132.02 per thousand square feet.
Gypsum wallboard profit margins improved despite higher energy and waste-paper costs. Company chairman William C. Foote said the higher prices reflected strong demand.
The wallboard industry as a whole was producing at 90 percent of its capacity to meet that demand. Some experts believe prices will increase 15 percent in 2005.
There continue to be shortages of brick, especially in the South, where home builders use 33 percent of the 6.4 billion bricks produced for residential construction nationwide in a typical year, according to the Brick Industry Association. By comparison, the mid-Atlantic region uses just 4.1 percent of the brick produced annually.
Demand for brick has been increasing since 1999. Industry consolidation has reduced the number of plants over the years from 3,000 to 204, but a new factory can produce higher volumes than the older ones.
Still, because brick factories once could be found in just about any part of the country, fewer plants mean that transportation costs are more of a factor.
Demand for lumber appears lower and prices seem to be easing, at least for now. Random Lengths of Eugene, Ore., which tracks lumber prices, reports that prices of both framing lumber and sheathing (plywood and oriented strand board) have decreased a bit in the last few weeks.
"The delivery price for six months from now is lower than today's price," the NAHB's Carliner says, acknowledging that there is "still some upward pressure on wood."
Lumber is the biggest factor in the price of residential construction, since the typical new house eats up 13,837 board feet of framing lumber and 13,118 square feet of sheathing.
Random Lengths' composite price for framing lumber (also known as dimensional lumber) is $420 per 1,000 board-feet, compared with $392 a year ago. But that price reflects a recent drop of about $8.
The composite price for sheathing is $444, compared with $583 per 1,000 board-feet a year ago, Random Lengths reports.
Rising concrete prices are worrisome, because, as Marshal Granor of Granor Price Homes says, "we like to build basements."
The Portland Cement Association, which represents the nation's major producers, says that their prices aren't responsible for boosting home costs.
Concrete costs represent slightly more than 4 percent of estimated overall home-construction costs and less than 2.5 percent of the price of a new home on the market, estimated by the Census Bureau at $274,200, says Ed Sullivan, the association's chief economist.
Moreover, he says, concrete has experienced a real price increase of 0.1 percent during the last four years, after discounting for inflation.
Carliner, of the NAHB, says cement and steel shortages are more a reflection of global demand than just U.S. consumption.
"China has been a central factor in the shortage of steel and cement, but the government there has been trying to slow down construction to rein in the economy," he says.
Steel doesn't play much of a role in residential construction here, other than in the production of appliances. But with the U.S. economy beginning to heat up, Carliner says, there's bound to be more commercial construction, and concrete and steel availability may become problematic.
Rebuilding from last year's hurricanes and the damage they wrought in Florida raised some concern that there would be major shortages of concrete products - of which Florida imports a huge amount - and that prices would be affected.
That hasn't occurred.
"What happened," Carliner says, "was that the hurricanes put a lot of projects on hold - until after the roofs were replaced on a couple of hundred thousand houses."
-------------------------------------------------------------------------------- Contact real estate writer Alan J. Heavens at 215-854-2472 or snipped-for-privacy@phillynews.com. Read his recent work at http://go.philly.com/alheavens .
Tom Watson - WoodDorker tjwatson1ATcomcastDOTnet (email) http://home.comcast.net/~tjwatson1/ (website)
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
"Tom Watson" wrote in message

Same basic building plan: 2001 framing/cornice cost (material and labor) just under $40K. December 2004 framing/cornice cost (material and labor) just over $52K ... in both the labor cost was identical per square foot! Just did the prelim budget for another almost identical house in the permit stage and almost afraid to bid out the material takeoff.
... and it's not just the material costs that are high. You need to go to school to keep up with the increasing bureaucratic red tape.
--
www.e-woodshop.net
Last update: 11/06/04
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Do you think that that's a reflection of lack of skill or demand for labor? I'm guessing by Tom's article that new home starts are still doing pretty well, cuz of good interest rates.
I know, I know, you can't find good help anymore, but employers have been saying that ever since I can remember. But, with the cost of _everything_ else in construction going up, why has labor not gone up, even to match inflation?
I'm no economist, and I don't have a theory. I was wondering if somebody else did.
-Phil Crow
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

That's easy, down here anyhow ... an unlimited supply of workers more than willing to work for minimum wage. Most of these folks come from south of the border, are happy to work, and the reality is that if it wasn't for them many of us would be living in cardboard boxes we couldn't afford.
--
www.e-woodshop.net
Last update: 11/06/04
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Mon, 28 Mar 2005 18:43:35 GMT, USENET READER

It is easy to blame this all on illegals but the fact is you won't find many kids willing to work in trades these days, even at "legal" wages.
Personally I think the bulk of the INS mission should be shifted to IRS. The main reason these "illegals" work cheap is because they are working off the books depriving us all of the tax revenues we have to make up with our taxes. As far as I am concerned the IRS should have the power to grant visas to anyone who shows up at work and is willing to pay taxes like the rest of us. The cost of labor wikll go up but the overall cost to society will go down. These people are still driving on the roads, putting their kids in school and showing up in emergency rooms. The faster we get them on the tax rolls the better off we will be. Let INS deport the ones who don't want to play the tax game. The IRS is best equipped to find the cheaters, latino and anglo.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
snipped-for-privacy@yahoo.com wrote:

A significant part is it's easier to cook a little meth and make far more than any laborer wage plus if welfare and unemployment are nearly as much as working, why work? Add in uncontrolled undocumenteds and employers willing/desiring to get their labor as cheaply as possible and there's a good start...
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Duane Bozarth wrote:

Yes cooking up some meth can earn you more green that a laboring wage will earn you, but you have more risks cooking up meth, and you end up maybe doing jail time and having to piss away your money on lawyers when you get arrested.
What planet are you living on? Welfare and unemployment aren't nearly as much as working? Many people on welfare don't have employment skils or if they do, they don't have a way to get to work or can't afford day care for kids, etc.
So let's work on the problems we have - sending jobs overseas and letting all the illegals in to work on those jobs we haven't outsourced would be a good place to start. Let's seal up the borders and keep those illegals (and the terrorists and drug runners) out, stop sending jobs overseas (no tax breaks for corporate traitors), and restore some balance to the employer vs. employer transaction.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
USENET READER wrote:

Well, this part of the planet is rife w/ all of the above I mentioned simply from observation... :(
The chances w/ meth, etc., are certainly well worth taking for many--certainly the return/risk ratio is high enough to keep large numbers going and there's no dearth of new ones to take over the the ones that do get caught. Of course, the likelihood is that the same one has to get caught at least several times in order to be put out of circulation for any real period. Plus, one real problem w/ hiring labor is that as soon as they get a paycheck they're gone for who knows how long 'cause they're strung out...
While granted the unemployment/welfare <cash> income isn't as good as a working wage in cash dollars, w/ halfway houses, homeless shelters, food stamps, no or earned income credits, etc., etc., etc., I see quite sizable numbers able to live well enough that they have no incentive to work steadily...certainly not to be reliable employees.
Construction and other labor-intensive jobs are <not> going overseas...those kinds of jobs aren't the ones I was talking about.
If it weren't for the illegals, it would be almost impossible to find farm labor here. I require them to apply for status but, of course, many don't hang around long enough to get it before taking off. On occasion one will find one who has a green card, but they usually will end up at the packing plant or someplace that can pay benefits if their skills are anything at all marketable. Most of these are hard workers, but communication is a real problem unless one is fluent in their language and I'm an old-fogey who's too set at this point to learn... :)
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
snipped-for-privacy@yahoo.com wrote:

My theory is that you go out and look at the makeup of building crews today - they are almost all mexicans - probably all illegal - who will work cheaper. The growing flood of illegal alien labor is keeping the cost of labor down, not even keeping pace with inflation.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

HomeOwnersHub.com is a website for homeowners and building and maintenance pros. It is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.