Building Material Prices

“The days of getting great deals are over.” That’s how Bernard Markstein, vice president and senior economist, National Association of Home Builders, summarizes the building materials market. Homeowners need to understand that home building is not going to get cheaper as time moves forward, he says. Building material prices might remain low for the next month, but as a group, prices will be up one year from now.

On the labor front, the housing market has seen all the reduction in wages it’s going to see, Markstein says. “As the economy improves in the next year wages will stabilize and move higher. Energy prices will not move lower.

Localities are not cutting down on impact fees, and building will be getting more expensive. When we look back at this time one year from now, we’re going to say, ‘Boy, those were real bargains.’”

A surprising development in this housing downturn is not seeing some building material prices drop until recently, he notes. Prices for important items such as steel, copper and cement had not dropped until recently, while lumber, gypsum and insulation prices dropped as expected.

“One explanation for this is steel, copper and cement are used in other markets besides home building, namely industrial construction,” he says. “Demand in that market continues to be strong, but now that we have a worldwide recession we’re seeing those prices fall. The final factor is energy prices have been all over the place; gasoline was up to $4 a gallon at one point, and by the time this article comes out who knows where it will be. Energy prices drive so many product categories.”

The following comments on specific building material categories are by the NAHB’s Bernard Markstein, and are taken from an interview conducted with him by Residential Design & Build magazine.
Energy/Asphalt. Energy prices swing a lot, but when you get down to it they’re still up. Gas prices are down from a year ago but still up, back to around 2005/2006 levels. This affects everybody in terms of fuel for driving and running machinery like excavators and loaders. The price of energy also drives all plastic materials like PVC pipes, and of course, asphalt. Roofing material prices have risen in general. Gypsum and cement are also energy-intensive products to make. The price of energy has been one of the factors that has kept overall material prices up during this recession, so look out for it moving forward.

Gypsum. We’ve seen drops in prices in 2007 and 2008, but more recently there has been a little firming of prices. In more recent months we’re seeing a decline but prices are still up from the lows of early 2008. Prices are currently back up to 2005 levels. What we’ve seen in this market is a shutdown of older, less-efficient manufacturing plants. Gypsum prices have gone down because new, larger and more efficient plants have come online with ultimately a net increase in available output. Moving forward, we’ll see stable prices, and any price increases will be moderate. Given the pace of any increase in housing construction in the future, I believe it will be slow enough where manufacturers can bring on new capacity to keep prices at a reasonable level. Two or three years down the road, we’ll see prices move up.

Lumber. We’ve seen the most dramatic change in prices for lumber. Softwood is used for framing new single-family homes and for remodeling work. The price of lumber has been driven by housing starts; there’s a direct correlation. We have seen lumber prices fall dramatically. Now, about four years into the slowdown in housing, we have seen lumber prices fall to lows not seen before. They got so low to a point where it didn’t pay to produce it. Lumber producers are willing to lose money for only so long before they shut down operations. There has been enough of a shutdown of late; we’ve seen prices move up. We hit a low for weekly prices of $196 per thousand board feet in May, and the overall low was in January at $190; it’s the lowest ever recorded. Then in the first week of July it was back up to $245. We have seen a rebound of $50 per thousand board feet which essentially is a 25 percent increase off their lows. The $240/$245 might be a little high, so in the near term we won’t see any significant increases in price. And it won’t be surprising if they fall off a little.

Copper. This is another product driven by energy prices. We’ve seen copper prices shoot up to massive levels; then they declined due to the recession in housing and the world in general. And that spike was driven by labor relations in Chile, a major copper producer. We’ve recently seen prices move up but not to record highs. At one point we were down to a dollar a pound. Now we’re at $2.29. Moving forward, it’s difficult to tell, but I believe prices will continue at a relatively high level. It doesn’t look like we’re going back to a dollar or $1.50 a pound. Because copper prices held up during a worldwide recession, it’s an indication it could be a problem as we recover.

Cement. Cement prices rose through this recession. Prices rose 13 percent in 2006, and in 2007 prices were up 5 percent.

In 2008 when things were bad, we had flat cement prices. There has been some up and down but overall for this year we’re flat. Cement prices never came off their highs from late 2006/2007, which has to do with the world demand for cement. And of course cement prices are affected by energy prices in terms of cement production. Moving forward, prices are not going to drop and probably will go up as we come out of this recession.

Insulation. This is a smaller story in terms of prices, which never ran up that much. There’s only a little demand outside new construction, such as remodeling and commercial work. We saw prices fall because home building is a major factor. In 2006 when home building got crazy, we saw a run-up on price. Going forward price fluctuations should be moderate. Generally insulation is less prone to massive price swings.