Expect a run-up in lumber prices this coming spring that won't completely return to current levels along with slowly rising prices for a few other construction materials over the course of 2011, the chief economist for Reed Construction Data predicts.
In a forecast published Tuesday, Jim Haughey said that these increases are the natural consequence of what is expected to be a tepid economic recovery in 2011.
"There is very little risk of sustained supply shortages for anything," he said. "However, brief periods of tighter supplies for a few items--and price spikes--always occur in a period of rising demand."
Haughey believes one such spike will occur in lumber as housing starts increase; he expects they'll rise from an annual rate of around 600,000 today to 800,000 by year-end 2011. "A sharp price spike for lumber is likely in the spring or summer until additional mill capacity is restarted," he said. "The price surge will ebb after a few months, but prices will remain clearly above the pre-spike level."
As for other products, Haughey believes most price hikes will involve metal- and oil-based products, where international factors are in play. Price hikes of 5% to 8% next year are possible, as well as price spikes lasting a month or two.
The economist attributed some of these increases to the reduction in capacity by a variety of manufacturers. "Item by item," he said, "the demand-supply balance equilibrium will be restored in a period of rising demand and manufacturers and distributors will post higher prices to raise their long-depressed margins."
Haughey's bottom line: "Expect more price increase announcements in 2011 than in 2009-10. And expect the frequency of notices and the size of the requested price increases to accelerate over the year. Treat each requested price increase as negotiable. Some of the price increases will not initially be accepted by buyers."