More rising costs for new home developers
Rising home sales and the thinning inventory of real estate usually would have Lowcountry new homes developers riding high on profits.
The price of lumber per thousand square feet is quickly escalating:March 2013 $436 March 2012 $298 March 2011 $292 March 2010 $314 March 2009 $195 March 2008 $239 March 2007 $282 March 2006 $369Source: Random Lengths Publications Inc.
But some describe a tepid boom.
The median home price in the Charleston region is rising.Period Newly built Pre-ownedApril 2012-March $212,973 $180,000April 2011-March 2012 $204,359 $170,000April 2010-March 2011 $190,490 $178,000Source: Charleston Trident Realtors Association
In addition to a shortage of skilled workers, area developers are facing another profit-sapping dilemma: rising cost of materials.
Experts say the uptick in home sales are growing demand for new homes throughout the country, but some producers of vital homebuilding materials are slow to match the pace.
That has meant the commodities are costing more and forcing developers to choose between raising home prices and absorbing the added costs to make the home more appealing to potential buyers.
Phillip Ford, executive director of the Charleston Trident Home Builders Association, said some area contractors are facing a roughly 8 percent increase in the cost of building a home from a year ago.
“Traditionally, just like any business, you will try to pass on what you can to the consumer, and that depends on the market and whether it can support that,” Ford said. “Sometimes you will pass it all on, or just a bit if you can.”
Growing costs come as the price of homes already is climbing in the Lowcountry, especially new dwellings. The median price of sold new homes in the tri-county region was $212,973 between April 2012 and March 2013, up more than $8,600, or 4 percent, from the same 12-month span a year earlier, according to the Charleston Association of Realtors.
New homes prices continue to outpace previously owned homes in the region, which sold at a median price of $180,000 between April 2012 and March 2013, $10,000 more than the previous 12-month span, according to the association.
The producers of homebuilding materials such as lumber and drywall have been cautious to grow capacity due to years of profit losses during the housing meltdown and its aftermath, said Robert Denk, an economist at the National Association of Homebuilders, a trade group.
For example, James Hardie Industries in 2008 closed its Summerville factory that made cement siding, blaming the “severe housing market downturn.”
That factory has not reopened, but Denk said producers are starting to bring closed facilities back online. The rub is that it takes time to reopen large facilities and staff them with skilled workers who know how to run the machinery. Some laid-off employees may have shifted to other professions.
Denk and other experts are predicting prices to level off once production levels catch up with demand later this year.
For now, the imbalance has meant lumber, traditionally accounting for a seventh of overall cost of building a home, is seeing double-digit growth compared to a year ago.
The industry trade publication Random Materials reported that lumber is continuing to increase in 2013, even outpacing some highs during the housing boon before the recession.
The price of lumber per thousand square feet was $436 last month, up 46 percent compared to March 2012, according to the publication. It edged up $451 in the first week of April.
Shawn Church, editor of Random Materials, said lumber prices fluctuate, but today’s rates aren’t as high as they were before the recession. Builders saw some of the highest prices in 2004, hitting $473 per thousand square feet of lumber in August of that year, according to the publication.
“The market always reacts in times of tight supply or abundance of supplies,” Church said. “Sometimes it takes awhile, but ultimately it does adjust and it will go into a balance and you will see it moderate.”
The growing price of goods makes for a double-whammy of added costs for developers, who also are shelling out more for skilled labor and project delays because of a lack of skilled workers. Builders have said there is a shortage of craftsmen like home framers since some have moved out of the area or switched to other trades.
George Reavis of homebuilder Reavis-Comer Development estimated his costs are up roughly 10 percent from a year ago.
That has cut into profits for the Charleston-based firm, which is in the midst of several in-fill projects, including a planned 14-home project in Charleston’s North Central neighborhood.
“It’s not just lumber, but all of the building materials that are made with petroleum like PVC and asphalt shingles have gone up with the price of oil,” Reavis said. “Metal prices have risen dramatically as well like copper and steel.”
Reavis said the situation is tough, but he has decided to absorb the growing costs.
“You still have to meet the price of a market,” he said. “Just because costs are up 10 percent doesn’t mean you can mark it up 10 percent on its sale price.”
Reavis’ comments echo thoughts among several other developers. Some are looking at alternatives, such as substituting materials, absorbing the added costs and adjusting their ordering procedures.
Jeffrey Roberts, managing partner at Ecovest Development, said his firm is hedging by buying materials in bulk instead of purchasing them at market rates as needed.
“We have been committing to more materials in 60-day increments,” Roberts said. “It’s buying larger amounts of materials to avoid spikes in prices.”
Donald T. McDonough, president of Ryland Homes’ Charleston division, said the firm has seen a roughly 10 percent spike in lumber prices over the year.
He said that’s a substantial increase since a typical home can cost roughly $20,000 in lumber.
The builder of several large tracts in the Lowcountry, including parcels in Carolina Park in Mount Pleasant, also has been trying to lock in prices to resist the uptick.
But McDonough said some suppliers are becoming less willing to play ball.
“What you do as a builder is try to see if you can lock in a price with a longer commitment,” McDonough said. “We’re seeing suppliers are less willing to do it. That’s probably not a good deal to make for them since they see the upward movement and don’t want to give that profit away.”
Reach Tyrone Richardson at 843-937-5550 and follow him on Twitter @tyrichardsonPC.