By Matthew Power
When we reported in November about how well the housing industry had weathered the economic turmoil following Sept. 11, we kept silent on one key part of the long-term economic prognosis--the costs of building materials. Before jumping to (the wrong) conclusions, we wanted to watch those numbers a bit longer.
Prognosis: For the most part, the numbers look good for builders. Compared with costs a year ago, softwood lumber is down almost 2 percent, and the gypsum shortage appears to be subsiding, with prices down 11.3 percent from October 2000.
Wild cards remain, of course. The NAHB is in an uproar over the impact of a new 19.3 percent tariff on Canadian softwood lumber imports. And insulation costs have risen in some regions. But even these anomalies have more bark than bite.
Lower prices on some materials haven't come about by accident. In the case of the gypsum shortage, manufacturers recently launched a major expansion. USG opened its first new plant in 30 years. By the end of this year, capacity will exceed 1998 capacity by 30 percent. However, wallboard companies are now backing off. For example, Engineering News Record reports that the Atlanta division of Georgia-Pacific is planning to cut production by 45 percent this year already. According to the experts, however, those cuts will have little immediate impact on what you pay for drywall.
Even with the lowered production, for example, Amy Carneal, with Washington-based DRI-WEFA, a consulting firm, expects wallboard prices to end the year almost 25 percent lower than last year. The Producer Price Index is more conservative--but still positive for builders, showing an 11 percent price drop in gypsum compared with fall 2000. Carneal further predicts that prices will likely drop a couple more percentage points next year, before rebounding several points in 2003.
With regard to lumber prices, the doom and gloom warnings (mostly from the Canadians) about skyrocketing lumber costs as a result of the U.S. tariff on Canadian lumber haven't materialized. With news of the tariff, U.S. lumber companies cranked up production levels, even re-opening some closed mills. Lumber costs spiked, then leveled out at lower levels than last year.
Analysts such as Paul Jannke of Resource Information Systems in Bedford, Mass., predict that softwood lumber prices will rise slightly next year and remain fairly stable now that tariff issues have been settled.
"Builders tend to feel things more quickly than the Price Index shows them," notes Michael Carliner, staff vice president of economics with the NAHB.
Ironically, he says, the conflict in Afghanistan has had a positive effect on energy costs, which in turn has a big effect on production of building materials. "If we had been at war with Iraq," he adds, "this might have been a different story. As it is, it probably should have a downward impact on costs."
Story sources: Bureau of Labor Statistics, Engineering News Record, NAHB
The commodity prices of materials in the month following the events of Sept. 11 offer mostly good news for builders worried about inflated costs.
Price check: Despite the Sept. 11 tragedy, commodity prices for building materials show remarkable stability. Some, like gypsum, have improved dramatically over last year. One caveat: Softwood lumber prices could change rapidly under new Canadian tariff laws.