Special to Realty-Builder Connection
Builders can expect modest relief from soaring materials prices in the coming year with the notable exception of the cost of cement, which is expected to peak in early 2005 as Florida’s post-hurricane reconstruction efforts move into full swing, according to analysts at the National Association of Home Builders’ Construction Forecast Conference in Washington, D.C.
The conference, held twice yearly, brings together top experts from across the housing industry to discuss topical issues. Led by scrap steel costs, which soared 80 percent since last year, several key building materials have posted double-digit increases over the past 12 months. Steel mill products jumped 43 percent, lumber prices are up 27 percent, gypsum 20 percent and cement 6 percent.
Ken Kuester, an officer of the Northeast Florida Builders Association and president of Lumber Unlimited, said the lumber and plywood prices have stabilized and are returning to the five-year historical norm from the peak levels of the third and fourth quarters of 2003.
“A recent builder survey indicates that lumber and plywood remain a prime concern, but concrete price and availability made the top 10 concerns list of home builders,” Kuester said. “I believe lumber and plywood will remain the preferred residential construction materials. Considerable research and development has resulted in more efficient use of by-products, synthetics and wood-composition products, which are much more cost-effective, environmentally friendly and less susceptible to market volatility than alternate building products.”
John Mothersole, senior member of Global Insight’s Industry Practice, says the increases are a normal commodity price cycle and we are currently at the peak.
“We believe that commodity prices are topping out and moving on a downward slope,” Mothersole said. “However, the bad news is that the ride down won’t be too steep in 2005.”
China’s phenomenal growth has caused global demand to exceed capacity, leading to a huge price run-up, he said. Shipping capacity also has been strained, causing transportation prices to soar.
“A year ago, a tanker cost $35,000 a day. Today that cost is $135,000,” he said.
Mothersole forecast that steel prices will start declining in the current quarter and continue to ease through 2005 because of several factors: steel products are profitable, so more plants will be coming online; additional shipping capacity will be added; and, because U.S. steel prices are set above the global rate, there is an incentive to sell more product to the American market.
In the case of cement, with lean inventories on hand, the housing industry this year has been caught flat-footed by surging demand. High shipping rates and rail bottlenecks have exacerbated the problem, resulting in spot shortages and an 8 percent price hike from the second quarter of 2003 to 2004. Eliminating costly tariffs on Mexican cement imports would help alleviate the shortages, but Mothersole said he does not expect this problem to be resolved soon.
Import availability and transportation issues are not expected to be corrected in the next eight months, he added, and as a result of Florida’s massive rebuilding efforts, cement prices won’t reach their peak until next spring, after which there will be modest declines. The price of gypsum has increased roughly 20 percent this year, but price gains for this product should fall into the 6 percent range next year, as sales slow and imports rise.