It's the LBM equivalent of the old phrase “Think globally, act locally.” For dealers, this means that local housing demand isn't the only factor driving prices for many building materials these days. Dealers also need to keep an eye on currency fluctuations, production capacity, global demand, trade agreements, and the cost of crude oil. “Copper and steel prices are high right now because of global demand for metals, not U.S. home building,” says Bernie Markstein III, director of forecasting for NAHB Economics in Washington. At the same time, a new and looser (if not completely open) trade deal regarding Canada's lumber exports into the U.S. has, with housing's slowdown, helped drive lumber prices to their lowest level in five years.
As dealers continue to hunker down in the current housing market and look for the right mix of commodity and high-margin products to package, it becomes even more important to know where materials prices across several categories are headed. Here's where the most common dealer-kept products are predicted to turn this year, and what some dealers are doing to make the most of a down cycle.
Unlike lumber, prices for concrete and masonry products used to build foundations and flatwork remain historically high; roofing tiles and fiber-cement siding also are along for the ride.
Adding insult to injury, these products continue to require long lead times, though availability is becoming more reliable as housing demand shrinks and more capacity—about 11.5 metric tons, a 15% increase—comes on line through the decade. Even so, demand along the rebuilding Gulf Coast, where concrete materials are historically and culturally popular, will temper the impact of higher production. This year, the Portland Cement Association, Skokie, Ill., predicts an average of about nine days of available ready-mix supply, less than half of what it was in 2003 but much better than the six-day inventories seen in the past two years.
Domestic housing production, however, is only a fraction of what's driving the concrete materials market. Residential use accounts for less than half its total consumption, while fuel costs to transport cement (the key ingredient for concrete mix) within and from outside the country also drive up prices. Nearly a third of the cement consumed in the U.S. is shipped from overseas.
As with timber imports, domestic trade policy seems to get in the way of enabling a lower price point. “A logical source of affordable cement is Mexico,” which has excess capacity and cheaper shipping costs compared to Asia, says Markstein. But quotas and fees on Mexican cement imports have limited that source, and created some curious and counter-productive scenarios. “In some cases, Mexico is sending its cement to China, which turns around and sells it to us. All that does is drive up the cost of housing,” he says, a situation that hardly helps in a down market.
Steel, Copper, and Other Metals
More than any other building material, steel and metal price spikes and dips during the last seven years have been subject to a wide scope of demand, one of the least of which is U.S. housing production.
Most of what's driving the price of steel and other metals is increasing hunger for product in China and India, the high cost of energy to produce and recycle the material, and even the trend toward larger SUVs.
Dealers and builders have felt the impact. Nails, rebar, finish hardware (such as hinges), wiring and metal parts for appliances, plumbing pipes and fittings, and locksets have all climbed in price as a result of the global metals market, particularly for steel and copper. That being said, the demand for price-sensitive, light-gauge steel framing components has dropped off the map, says Markstein, as lumber prices and overall housing have both fallen.
Of all the metals, copper's climb up the price chart has hurt housing most. That's because copper's use in building construction—about 440 pounds of it among various systems and products per house—accounts for nearly half of the world's supply, according to the Copper Development Association in New York. By NAHB estimates, copper's recent price spike has added $1,000 to the price of a 2,100-square-foot new home.