Soaring Materials' Prices; A Consideration for Student Chapter Competitions

With the summer building season in full swing, soaring material prices — particularly for oriented strand board (OSB), plywood, framing lumber and metals — are cutting deeply into the profit margins of many builders, contractors and remodelers, forcing them to pay the difference or pass on the costs to consumers.   Such an influx in prices will certainly be a consideration for those NAHB Student Chapters competing in the Residential Construction Competitions.

Collectively, the increases in wholesale wood and metal prices over the past year could add about $5,000-$7,000 to the cost of building an average-sized home, according to data compiled by NAHB economists.

Random Lengths, a trade publication based in Eugene, OR, reports that prices of both OSB and plywood hit an all-time high for the week ending April 16. A 4x8 sheet of 7/16-inch OSB board cost $16.58 and a 4x8 sheet of 15/32-inch 3-ply southern westside plywood sold for $16.80. OSB and plywood prices have each skyrocketed more than 100% since a year ago.

Meanwhile, Random Lengths reports that framing lumber prices are at their highest level since July of 1999, and now stand at $439 per 1,000 board feet.

A survey of builders in April found few, if any, cases of outright shortages. But more builders reported higher costs for more materials than in similar NAHB surveys conducted in recent years.

“Our OSB and plywood costs are up more than 100% since last year. Add in increases in concrete, metal and framing materials and the average cost of a home constructed through our company has increased by about $7,000 since the beginning of the year,” said Jason Betsill, vice president of Jeff Betsill Homes Inc., which builds 2,400-2,600 square foot single-family homes in Fayette County and Coweta County, GA, that are priced in the $240,000 range.

Betsill reports that his firm has absorbed some of the cost increases and has passed part of them on to consumers. “Fortunately, demand is still strong, but if interest rates go up and lumber prices remain high, we could see a slowdown,” he said.

“We have had to eat substantial sums of money to honor contracts,” says Dave Wrocklage, sales manager for Epoch Corp., a custom modular builder based in Pembroke, NH. “Everything we use in all our houses is going up — lumber, fasteners, sheet rock, steel. Nothing I know of is remaining static. Everything is rising rapidly.”

Epoch Corp. produces about 200 modular homes per year ranging in size from 2,000-3,000 square feet and priced in the $100,000-$200,000 range.

Wrocklage estimates his firm’s building materials costs have risen about 3% in the first quarter of 2004. “We do a quarterly review of our pricing and raise prices as necessary. Lumber prices change day-to-day. We can’t stockpile, we are at the mercy of our suppliers.”

A basic imbalance between supply and demand is fueling the surge in wood panel prices, and inadequate capacity to meet home building demand could worsen the situation as housing construction moves into its peak season.

Ninety percent of OSB demand comes from residential construction, including remodeling. OSB has increasingly displaced plywood in home building, but there were only slight increases in OSB capacity in 2002-2003, and only one new plant is scheduled to open this year.

Capacity in North America will increase by about 4% by year-end, but several plywood plants have closed, offsetting most of the new OSB capacity.

The wholesale price for a basic 4x8 sheet of OSB rose from about $6 at the beginning of April 2003 to more than $16 today. If an average home uses 300 sheets, that translates into $3,000, before accounting for increases in sales taxes, financing and other costs that rise in proportion to the cost of materials.

For plywood and lumber, residential construction represents about 70% of demand. Lumber prices have risen less than panel prices, and the increases have generally not been caused by a shortage of mill capacity. The tariff on imports from Canada affects the price, but the tariff rate has not increased since May 2002.

Over the past year, the average mill price of framing lumber increased from $282 per 1,000 board feet to $439. With an average of 16,000 board feet per house, that represents $2,500 before adjusting for any add-on costs.

Prices for products made from steel, copper and other metals have increased sharply, with much of the price hikes attributed to purchases by China. Steel and other metals generally account for a smaller share of new home costs than wood products, but metals are used in many components, such as trusses, windows, exterior doors, wire and HVAC equipment.

NAHB estimates that the overall increases for metals, if passed on to builders, could approach $2,000 per house.

NAHB has taken several actions in an effort to mitigate the effects of higher materials prices.

The NAHB Research Center has provided information about alternative materials such as non-structural sheathing, fiberboard and cementitious board that builders can use in their homes.

NAHB lawyers have prepared contract language for escalation clauses in home sales to help protect builders from the adverse consequences of price spikes for building materials.

The adaptable escalation clause has drawn interest from scores of members. “We plan on incorporating this into our next contracts,” said Nathan Graben, president of Graben Construction Inc., a custom home builder based in Panama City Beach, FL.

NAHB opposes trade barriers such as anti-dumping and countervailing duties imposed on Canadian lumber, and the anti-dumping duties on Mexican cement. NAHB has lobbied the Congress and the Administration, as well as undertaken efforts to inform builders and the public about the adverse impact of trade barriers. NAHB is continuing its campaign for the elimination of tariffs and against the imposition of quotas on lumber imports from Canada.

NAHB has also contacted OSB producers and raised concerns about the impact of price increases on builders and consumers, calling on them to increase supply and create additional capacity. [ return to top ]