What a difference a year makes. Last spring, the U.S. was preparing for war in Iraq, prompting many businesses and buyers to refrain from making major investments. But today, the continued—almost unprecedented—demand for homes has begun to outstrip raw material supplies, resulting in an alarming run up in prices in recent weeks.
Ken Simonson, the chief economist of the Associated General Contractors of America, observes that steel price increases have been “sudden, steep, and devastating,” with rumors of double-digit increases to come. In addition to steel, Simonson notes that prices have spiked recently for copper, wood products (particularly plywood and oriented-strand board), and natural gas (a key ingredient in PVC pipe), some insulation, and heating and electrical items.
But it is lumber where the rising costs are most acutely felt. The composite price for framing lumber in the U.S. jumped 17 percent from Dec. 2003 to late Feb. 2004, to $376 per thousand board feet—levels not seen since mid-2001—according to Random Lengths Publications (see chart, at right). The composite price for structural panels, meanwhile, rebounded to record highs first seen last fall, reaching $554 in February after dipping to $356 in December, a 60 percent price swing. Random Lengths publisher Jon Anderson noted that mills increased production to record levels in the second half of the year, but still fell short of estimated consumption, except in December when prices plummeted back into their normal ranges.
Although most big builders lock down long-term price contracts for materials, subcontractors who often buy materials and invoice builders are being hit hard by price hikes, which are eventually expected to show up in higher new-home prices.
Officials at Pulte Homes estimated, for a Wall Street Journal report, that consistently high lumber prices might add $1,000 to $1,500 to their home prices, since lumber and paneling comprise about one-fifth of the cost of construction. Given the high prices builders can command for homes nowadays, such a price might reflect only a half-percent increase, said Pulte CEO Richard Dugas Jr. Still, these percentages can add up.