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Rising building material costs may dampen new home sales

| Thursday, Dec. 27, 2012, 12:01 a.m.
A construction worker carries lumber as he works on a house frame for a new home in Chula Vista, Calif. U.S. builders broke ground on fewer homes in November after starting work in October at the fastest pace in four years. Lumber futures jumped to the highest in seven years after home prices climbed more than forecast in October, adding to signs of stabilization for the housing market. Gregory Bull | AP

Homebuilders, in the midst of recovering from slow sales caused by the Great Recession, have received a new blow that could slow sales again.

The cost of materials used to build houses is jumping.

Prices for drywall, cement and lumber are fast outpacing inflation of 2 percent, according to the National Association of Home Builders.

Lumber prices have increased 35 percent since December 2011, the association said, reaching a seven-year high on Wednesday. Lumber futures for March delivery gained 3.8 percent to $399 per 1,000 board feet on the Chicago Mercantile Exchange after touching $399.50, the highest since April 2005.

The Associated General Contractors of America reported higher prices for gypsum products such as wallboard, up 14.9 percent, and architectural coatings, up 10.5 percent in a year. The cost of interior walls for new homes has increased more than 14 percent from November 2011.

Confronted with these higher prices, Pittsburgh-area homebuilders, such as Bill and Steve Fink of Paragon Homes, are finding they must inform potential buyers of the increased costs.

“We have been telling our customers exactly that. The cost of building materials has gone up, as have the number of single-family housing permits,” which increases material demand where supply may be limited, they said,

“Some people might find themselves priced out if they wait; otherwise, they may end up paying thousands more than they wanted to,” Steve Fink said.

Every indication from suppliers is that the cost of materials will be rising more steeply this year and could add 8 to 10 percent or more to the cost of a new home, Fink said.

“Our roofing supplier tells us to expect a 12 percent rise, while insulation is expected to go up 7 percent,” Fink said. “January and February is typically when building material price increases are announced.”

Experts said higher prices are the result of historically low interest rates that have boosted demand for new houses. In addition, rebuilding from Hurricane Sandy is requiring a lot of materials, tightening supplies. And demand for supplies from China is increasing, according to Scotiabank Group.

Jeff Martin, owner of Primrose Homes Inc. and president of the Builders Association of Metropolitan Pittsburgh, said increased prices for building materials “developed over the course of this entire year.”

“We have definitely seen couples put plans on hold. But the fact is that remodeling costs have risen as well, so the question a couple faces as to whether to build new or remodel still has the same thought process,” Martin said.

Much of what builders pay for supplies is driven by national manufacturers that are seeing their business pick up. This will continue as long as the national homebuilding demand is there, he said.

Mitch Wagner, vice president of purchasing for 84 Lumber, says lumber prices have gone up 43 percent in the past year.

“Apparently, we are out of the downturn in single-family housing starts, which are higher this year, but lumber production hasn't yet met demand because since 2007, many sawmills were either closed or reduced production.

“They are now starting to come back, but mills are saying, ‘Show me first' that the demand will continue before they raise production. We are cautiously optimistic that the demand (for new housing) will continue,” Wagner said.

Chris Cluss, CEO of OC Cluss Co. in Uniontown, said, “Even though housing starts this year should reach about 900,000, that's nowhere near the normal years when 1.3 million to 1.4 million new houses were produced nationally.”

“The housing market has improved (because) as of today there is just below a five-month supply of new houses for sale, the lowest number in seven years, when there was a nine- or 10-month supply,” he said.

Sam Spatter is a staff writer for Trib Total Media. He can be reached at 412-320-7843 or sspatter@tribweb.com.

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