|Posted on Monday, October 11, 2004|
We Mean Business. Illinois Business.
Hurricane quartet expected to spike cost of home building materials
The recent hurricanes in Florida and the Gulf Coast may push near record-high building materials costs even higher, industry analysts say.
Various types of building materials have been in short supply and in increasing demand for some time. As previously reported in the Illinois Business Journal, these include cement and steel.
But other materials commonly used by the homebuilding industry - framing lumber, plywood, oriented strand board or OSB, wallboard and insulating materials - are experiencing similar market pressures.
"Rising wholesale prices of building materials have added $5,000 to $7,000 to the cost of building an average new home, and construction delays caused by supply shortages could translate into further cost increases," said Jerry Howard, executive vice president and chief executive officer of the National Association of Home Builders.
At the base of the inflating materials costs is continued strong demand for single-family homes and condominiums. Housing starts climbed back to the highest pace of the year in August, reaching a seasonably adjusted annual rate of two million units, according to the U.S. Department of Commerce.
Despite strong demand, there has been little increase in OSB capacity since 2001 and plywood capacity has actually fallen each year since 1999, according to the NAHB. Home Builders Association of Greater Southwest Illinois, said long-term low production levels are also a contributing factor.
"A number of drywall manufacturers in the 1970s and 1980s had closed their manufacturing facilities because the housing market was so bad then," he said. "In the 1990s, the housing market started to rebound. And in the late 1990s to early 21st century, some of those manufacturers just began to get back to the levels of production that they were at in the late 1970s by opening new facilities or reopening shuttered facilities," he said.
According to Random Lengths, a weekly publication that reports on the wood products industry, 1,000 board feet of framing lumber reached an all-time high of $474 in mid August - compared to $322 in August of 2003 and just $294 in August 2002.
By mid September, the price had fallen to $458 but that was before the impact of Hurricanes Charley, Frances, Ivan and Jeanne could be determined. The total combined destruction of these hurricanes has been estimated to be in excess of $20 billion.
According to the National Oceanic and Atmospheric Administration of the U.S. Department of Commerce, Hurricane Andrew in August of 1992 was the most destructive single hurricane of record, causing $26.5 billion in damage.
Gregory Gieber is a vice president and home building analyst with A.G. Edwards Inc. in St. Louis.
Gieber said he was expecting some relief from the high materials prices, but the hurricanes have dashed that hope.
"I expect housing to cool because of rising interest rates into the fall and early next year," he said, "but I think the hurricane will offset any of that reduction in demand and keep pressure on materials prices."
According to Gieber, the last large hurricane, Hurricane Andrew in 1992, resulted in a temporary spike in materials prices that - combined with a strengthening housing market - accelerated materials price inflation in the economy through 1993. "You have a multiplying effect when you have a hurricane on top of strong demand," he said.
Gieber also predicts an impact in construction labor.
"When Andrew hit, a fair amount of the labor that did a lot of the work was migratory labor that came down from the Northeast and Canada," he said.
Rombach agreed with Gieber's assessment.
"It's been something that's been building for two or three years and those materials are only going to get worse as the South starts its recovery from this series of hurricanes," he said.