By Alison Rice. For an industry that closely watches its hard costs, the current quarterly building product price forecasts by economic consulting firm DRI-WEFA have a certain appeal. Cement: down .4 percent in the third quarter and .2 percent in the fourth. Wallboard: also down slightly in the third with a small increase at year's end. PVC prices may drift up, but that product is in the minority.
Even lumber, surrounded by the U.S.-Canadian trade controversy, may fall, according to DRI-WEFA economist Amy Carneal, who predicts lumber prices will decline in the third and fourth quarters, by 4.6 percent and 3.4 percent, respectively.
The driving force? A new-home market that's expected to slow (despite May's housing starts surge) and a nonresidential construction market that's already fragile. "We see a weakening [in new construction] because the housing season got pushed so early," says Carneal. "Because of that, we do expect to see some [softness in building product prices] throughout the year."
There are other factors: from extra manufacturing capacity to excess supply. Before a tariff averaging 27.2 percent on Canadian lumber took effect in May, Canadian suppliers took advantage of a duty-free window to ship what they could over the U.S. borders. "We don't know the quantity, but we know it was enough to create a shortage of rail cars in western Canada," says Michael Carliner, an NAHB economist. "Producers that couldn't get a rail car were shipping it by barge."
Needless to say, the frenzy drove down lumber prices this spring and beyond.
Such downward price shifts, especially in lumber and wallboard, could support builder profitability or more competitive home pricing. Still, the price cuts may not make as much difference in a builder's bottom line as people might expect.
"It's not always a direct cause and effect," says Joseph Sroka, an analyst with Merrill Lynch. "The biggest fluctuating cost is, and always will be, land."
Regional and market differences may insulate or expose a builder to price fluctuations. So can purchasing decisions. Buying wallboard with a subcontractor's services won't cost the same as purchasing the product separately. That may be OK, if the sub eats the extra cost rather than the builder. "It depends on how costs shake out along the value chain," Sroka says.
But others suggest builders--and home buyers--may be more at risk. Carliner expects lumber prices to start creeping upward in the next three months, with more pressure to come if world demand for lumber boosts the currently low U.S. prices.