“Just when you thought it was safe to go back in the water” may be a cliche, but it’s also an apt description of the way many builders feel these days as they come to grips with the latest impediment to a full housing market recovery: rapidly increasing prices for some key construction materials.
For example, by April, framing lumber costs increased by more than 40 percent during the previous six months, and prices of OSB doubled from April 2012 to April 2013.
Like home builders, construction material producers cut capacity during the housing market crisis, and prices for some materials declined. But as increasing numbers of home buyers move back into the market, prices are on the upswing and some materials are in short supply.
This is particularly problematic at a time when profit margins are thin and consumers are resistant to price increases. In fact, many still expect the kinds of price concessions that were commonplace during the downturn.
Unfortunately, as a result of material price increases, home construction costs are rising at a faster pace than appraised values. Coupled with ongoing difficulties in obtaining construction credit, restrictive mortgage lending rules, and a shortage of skilled labor, the resulting market conditions are slowing the recovery and keeping the housing market from rebounding at a more robust pace.
The NAHB has taken a number of steps to help ensure a sufficient supply of building materials and will continue the effort as long as necessary.
To help ease lumber price volatility and increase timber production on federal lands, the NAHB is supporting the Restoring Healthy Forests for Healthy Communities Act, which was introduced by House Natural Resources Committee chairman Doc Hastings (R-Wash.). In testimony before Congress we pointed out that the legislation will help ease rising prices, protect the environment, keep housing affordable, and allow responsible timber production on federal lands.
We also have contacted a number of key policymakers, including U.S. Commerce and Interior Department officials and Canadian government representatives, to urge that “there are no regulatory barriers or supply-chain interruptions that increase prices or impede availability” of building materials.
Even the news media have recognized the extent of the problem. National media sources have reported that the rising cost of construction materials is one of the primary factors holding back home building and job creation.
Builders, too, need to be proactive to diminish the impact of rising construction materials costs.
The NAHB encourages its members to establish and maintain good working relationships with their vendors so that during periods of price volatility, builders can work out arrangements with suppliers to pre-pay at current (presumably lower) rates and take delivery of materials when they are needed.
Members also should consider using price escalation language in contracts to limit the damage that unpredictable price hikes for materials can cause. Sample price escalation language is available to members at NAHB.org/clause.
We know it will take some time for the supply chains to re-establish themselves and for supply and demand to move closer to equilibrium. Meanwhile, the NAHB will do everything it can to make it safe for builders to get back in the water.