Fluctuating costs for home materials including lumber and gypsum have prevented residential construction from gaining traction this year, according to a number of progress reports from building groups.
The whipsawing financial movements are particularly dramatic in terms of softwood lumber prices, which climbed close to 20 percent to its all-time peak in June, then sank a cumulative 21.2 percent. That includes a 10.3 percent slide in October, the sharpest decline since May 2011, according to the National Association of Home Builders citing the Bureau of Labor Statistics' Producer Price Index.
The home builders group cites a similar back-and-forth pattern for Oriented Strand Board — an engineered alternative to plywood. Through July, prices surged 38.1 percent this year. It's fallen 16.6 percent since then. Still, the OSB cost stands 15.2 percent higher than it was at the beginning of 2018, according to the home builders association.
At the same time, prices for goods that are used in the residential construction industry increased 0.4 percent in October and are up 7.5 percent for the past 12 months. The 5.6 percent year-to-date increase outpaces a 2.9 percent rise last year.
Meantime, gypsum prices fell 1.6 percent in October, but like lumber costs have moved up and down in 2018. The price index for gypsum products such as wallboard is 6.3 percent higher than at the start of 2018. But costs fluctuated including back-to-back 5.4 percent and 6.1 percent jumps and month-after-month decreases of 3.3 percent and 1.8 percent, the home builders association notes.
Observers cite economic policies as indirectly impacting the rates. "The threat of tariffs is putting pressure on prices of construction materials, driving up project costs," the National Real Estate Investor explains. In particular, apartment home developers and contractors have felt the impact as much as any builder group, the online publisher points out.
"Lately we have seen a few knee-jerk reactions from manufacturers claiming upcoming price increases or possible increases due to tariffs," Marc Padgett, president of Summit Contracting multifamily general contractor in Jacksonville, Florida, told National Real Estate Investor. "Often, they can't substantiate the claim because there isn't an actual tariff, just the mention that there could be one."
Bureau of Labor Statistics figures show the producer price index for steel mill products increased 19 percent in August from a year earlier. while the indices for lumber and plywood "rose sharply this spring and early summer, though wood prices dropped back in July and August," the investor periodical notes.
Labor shortages also play a role in the construction industry.
"It has simply continued to get worse," Paul Emrath, vice president of surveys and policy research for the NAHB, says in the National Real Estate Investor article.
A wide range of construction positions are hard to fill, according to a survey from the Associated General Contractors of America. "More than two-thirds of the firms that employ pipe-layers, sheet metal workers, carpenters or concrete workers reported more difficulty than a year ago in filling each of these positions," the organization says.
While construction prices don't necessarily mirror home sales or new residential starts, the number of new single-family houses sold nationwide fell 8.9 percent in October from a month earlier to a seasonally adjusted annual rate of 544,000. The October rate compared with an "upwardly revised" 1 percent increase in September and missed market expectations of a 3.7 percent rise, according to Trading Economics online researcher. The new home sales total was the lowest in two-and-a-half years, it notes.
Trading Economics disclosed that new home sales averaged 650,280 over the past 55 years. The all time high was 1,389,000 in July 2005 during a surge in the real estate market while the record low, in the midst of the national recession and housing slump, was 270,000 in February 2011.