AFTER MORE THAN A YEAR OF NON-STOP price increases for building materials, some relief may be on the way. Economists predict that the anticipated slight drop in housing activity and greater availability of high-demand materials will be enough to drive prices down—slightly.
“The good news is we believe we're on a down slope,” John Mothersole, principal of Global Insight Industry Practice, told an NAHB construction conference. “The bad news is the trip down won't be too far.” Prices will retreat from their 2004 highs over the next year, he says, but they won't drop below their levels in early 2003, when this cycle of increases started.
Here's an idea of what builders—and purchasing managers—might expect this year:
Plastic products/PVC: Prices jumped about 7.5 percent in 2004, driven by increases in the cost of natural gas. The good news for builders: Those energy costs are expected to drift downward through 2005 and 2006. Mothersole expects only a slight decline in plastics prices for 2005—about .3 percent. But the days of bargain basement natural gas prices may be gone forever, which alters the overall price structure for products that rely on that input.
Wallboard: “The worst is over,” Mother-sole says. That worst resulted in a 17 percent spike during 2004, but prices had begun to ease by the end of the year and should be down about 6 percent by the end of 2005.
Cement: Cement shortages made headlines last spring, but the industry has stepped up production, and Mothersole expects the bottleneck of shipments to ease, helping bring prices down in the second half of the year. But before then, there are still price hikes of about 7 percent to come during the winter and spring.
Steel: Another news maker, steel prices skyrocketed in 2004, up more than 40 percent, driven in part by global market competition. But Mothersole says higher prices in the U.S. market should spur additional supply to America's shores, helping to stabilize prices.
Wood: The volatility in lumber product prices isn't expected to disappear in 2005, but prices should trend downward. Al Schuler, research economist for the USDA Forest Service, forecasts a 15 percent to 20 percent drop in softwood lumber prices, a 15 percent drop in plywood prices, and a 30 percent drop in the cost of oriented strand board. The availability of engineered wood products should get a significant boost throug Boise's plan to increase capacity by 50 percent in 2005 and another 35 percent in 2006.