Budgeting direct input costs on materials and labor for 2018 could hardly be more challenging.
Policy uncertainties on immigration, on trade, on taxation, on regulation make projecting expenses a fool’s errand.
Not to mention how nature keeps changing plans about what’s going to be built, and rebuilt, and where, all of which will have material impact on the timing and cost and direction of materials supply over the next several months at least. (Prayers, thoughts, and heartfelt support go out to all of those who’ve lost so much and are fighting to survive California’s wildfires.).
Here’s a report from National Association of Home Builders economics department analyst David Logan on key readings from the lastest Bureal of Labor Statistics Producer Price Index (PPI), focusing on two important commodities for builders, OSB and softwood lumber.
Logan zeroes in on OSB specifically because it seems to have de-coupled from a number of other materials costs, even as economy-wide producer prices inched up 0.4% in September. He writes:
“The price of OSB increased 4.4% in September and has risen 19% and 38% since September and January 2016, respectively. The surge was in contrast with moderate increases in prices paid for gypsum products (+0.3%) and ready-mix concrete (+0.2%). The price of softwood lumber fell 0.9% in September.”
Producer prices as tracked by the BLS mask the experience builders and remodelers have when they’re buying materials like OSB and softwood lumber. Random Lengths, which gives a more real-world look at the cost of these commodities before they head to a job site, has an altogether more dramatic picture of the spike in expense.
Logan explains, too, why there appears to be an inverse relationship between PPI data on softwood lumber trends–showing an easing of prices–and actual prices builders and remodelers are encountering at in the U.S. distribution channel. He writes:
Two important factors drive the disparities between price changes builders have experienced and the PPI index changes:
- The producer price index tracks prices paid by wholesalers, distributers, and retailers rather than what those businesses charge customers.
- The index does not include prices paid for Canadian products as it does not include imports (just as the consumer price index does not reflect prices paid for exports).
Which is all to say that builders who are looking to price their homes for 2018 with some level of confidence based on their input costs are going through some frustrating exercises these days, as every expense area seems to be a moving part.
Except maybe land-base costs, which can be safely projected as very high.
