As the real estate market for new construction softens, a new hurdle is hitting them as construction supply costs are going up significantly. This is a source of concern for builders as the price increases that were absorbing these extra expenses have stopped and any additional expenses are going to come out of the bottom line.
Combine this with a soft sales forecast for parts of the country, it is probably going to be a rough year for builders and their stocks.
“We see it in lumber, concrete, insulation, drywall and vinyl,” said Jason DeBoer, co-owner of DeBoer & Gabriel Builders Inc., which specializes in single family home construction and remodeling. “Every week we see memos (from suppliers) of price increases of 5 percent to 10 percent.”
“When you set a price on the home its hard to stick to the price. Often the contractor or homeowner is the one who suffers through this,” he said.
In December, steel prices were up 4.2 percent from the previous year, while plastics were up 20.6 percent, according to the most recent data collected by Jim Haughey, director of economics at Reed Business Information. Cement was up 12.3 percent and gypsum wall board was up 15.3 percent from December 2004.
Haughey believes the higher material costs contributed to the increase in construction spending last year reported by the U.S. Commerce Department — it wasn‘t just that more projects were being built, it was also that they cost more. “Generally, the increase in various costs accounted for half of the rise in spending,” he said.
“The price increases are widespread,” said Stephen Hulston, regional manager at Howard S. Wright Construction Co. He said supply disruptions related to Hurricanes Rita and Katrina raised prices for PVC pipe, used by plumbers for water lines and electricians for wire conduits. PVC is a byproduct of natural gas. via the AP
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