Suppliers of Building Materials Increase Prices Amid Construction Growth

Construction is on the rise. The U.S. Census Bureau in a Joint Release with the U.S. Department of Housing and Urban Development this month indicates that "Privately-owned housing starts in March were at a seasonally adjusted annual rate of 626,000. This is 1.6 percent (±15.2%) above the revised February estimate of 616,000 and is 20.2 percent (±15.3%) above the March 2009 rate of 521,000." And statistics from the National Association of Home Builders (NAHB) indicate that building permits by states and metro areas increased an average of 22% between March of 2009 and 2010. But because materials manufacturers slashed production in 2008/2009 and suppliers followed suit with reduced inventories, this uptick is exactly what the supply side was hoping for.

Additional statistics from the NAHB show that framing lumber prices have steadily increased in 2010. The price per 1000 board feet was $248 on January 1st and grew to $365 by last Friday. "Framing lumber prices have ranged from a high of $490 per 1,000 board feet in July 1999 to a low of $190 in January 2007" according to the NAHB. Supporting these numbers, this morning's WSJ wrote "With inventories low, pricing is being driven by lean supplies right now, allowing materials companies to command higher prices. The average wholesale price for the lumber and paneling that goes into a 2,116-square-foot home, for example, hit $7,089 from $3,839 in April 2008, Crow's Weekly Market Report noted this week."

Now before anyone starts to rail against the producers for market manipulation -- at least this time around -- it's important to note, according to the The Journal, that "USG Corp., the nation's largest distributor of drywall, lost $110 million on revenue of $760 million, compared to a year-earlier loss of $42 million on sales of $864 million ... [and] Even though demand has been tepid and industry production rates are running at about 50% of capacity, USG is raising prices. USG and rivals have sharply cut capacity during the recession, so with wallboard supplies now more in line with demand, USG hiked prices 20% in March and plans a similar increase in May." And Temple-Inland Inc. of Austin, Texas "posted a first-quarter operating loss of $9 million, compared with a $2 million loss a year ago and $18 million in the fourth quarter."

Even though the home buyer tax credit is going away this month, this recent history is a rather clear indication that building materials will not be going down in price anytime soon. In fact, we should all hope that the current up-tick in housing starts and building permits continues – even if it means higher material costs. So even if you don't feel like starting those home improvement projects this weekend, you should at least consider buying the materials sooner than later.

William Busch

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