Dallas, TX, May 24--Builders are being hammered by skyrocketing prices. Costs of lumber, steel and concrete are surging, which adds thousands of dollars to the price tags of homes, apartments and commercial buildings, according to the Dallas Morning News.
"Every time you turn around, the prices are going up," said Bill Long, a North Dallas custom homebuilder. "One of my suppliers has even added a fuel surcharge.
"If you're working on a fixed-cost contract, how do you make up for that?"
Volatile materials prices are nothing new for the construction industry, and some of the increases are seasonal.
But so many prices are going up that it threatens to throw some water on the hot housing industry. It could also stall a turnaround in the commercial development sector.
Lumber futures prices have shot up almost a third since last December. And steel costs--while down in recent weeks--rose almost 85% between November and March.
It takes a while for jumps in commodities to affect the prices of construction materials, but builders and construction companies say they are seeing continued increases.
Todd Sedwick said the prices for OSB panels--the wooden composite sheets used on the exteriors of homes and as underlayment for flooring--have "gone through the roof."
"A year ago, it was $8 bucks a sheet," said Sedwick, who builds about ten spec houses a year in East Dallas. "Now it's anywhere from $17.50 to $20.
"It's hard to compete when you are paying an extra five grand on your house for sheathing," he said.
The builder said his suppliers are also hiking the prices for wallboard and framing lumber.
The changes can be treacherous for builders who do custom work and guarantee prices to buyers. Even padding the price for anticipated cost increases doesn't always work.
"If you agree on something and have delays on weather or the homeowner making changes, it can definitely bite you," Sedwick said.
This week the National Association of Home Builders began warning its members to brace for jumps in concrete prices and potential shortages.
Cement and steel prices are going up mostly because of a building boom in China, said Michael Carliner, an economist with the Washington, D.C. based builders' group.
"The Chinese are using huge amounts of steel and cement," Carliner said. "Normally we would be able to import more without running into supply problems."
Wood products are going up because of limited U.S. plant capacity rather than a shortage of raw materials, he said. And ramping up plant capacity isn't easy.
"Take OSB panels--I think the price now is about $500 per 1,000 square feet," Carliner said. "A new OSB plant could probably make money at $200, but it takes a long time to build a plant."
Some builders blame the wood products industry for limiting production in order to get price increases. They won't name names, but they do point out that there's no reason for suppliers to hold back production since home builders have been working at a feverish pace for three years.
"Home building is going along at record rates, and it is pushing against capacity for plywood, OSB and lumber," Carliner said.
Whatever the reasons for materials price increases, the cost to consumers is real.
"The wood products are the biggest piece for housing," Carliner said. With current increases, "it translates into about $6,000 or $7,000 more for an average-square-foot house."
Some developers are starting to rethink apartment building and commercial construction deals.
Palladium USA International Inc. has decided to refocus on buying properties instead of on widespread building.
"Our lumber costs have increased by about 80 percent since this time last year," said Palladium chief executive Tom Huth. "It used to be we could look at using steel framing as an alternative to lumber, but steel prices have increased as well.
"There gets to be a point where the acquisition route makes more sense than building."
Rising costs are a hot topic for local contractors, said Toby Cummings, president of the North Texas chapter of the Associated Builders and Contractors. The jumps in steel and concrete are prime concerns, he said.
"Both are items we're tracking and following closely," Cummings said.
Terry Darrow, president of industrial building developer Argent Property Co., said his company recently decided to delay several warehouse construction projects because the cost estimates came in too high.
"We had four buildings scheduled to start, and we said stop," Darrow said. "These steel prices are just killing us."
