Despite Plunging Lumber, The Cost Of Building A Home Remains Stubbornly High

The cost of building a home has not fallen much even though raw lumber is down 65 percent from the peak.

Building Materials Prices Increase in July as Concrete Surges

The National Association of Homebuilders (NAHB) reports Building Materials Prices Increase in July as Concrete Surges.

This article was originally published by Mish Talk.

The prices of building materials rose 0.4% in July (not seasonally adjusted) even as softwood lumber prices increased 2.3%, according to the latest Producer Price Index (PPI) report. Prices have surged 35.7% since January 2020, although 80% of the increase has occurred since January 2021. The PPI for goods inputs to residential construction, including energy, decreased 1.2% as the prices of #2 diesel and unleaded gasoline fell 16.6% and 16.7%, respectively.

The price index of services inputs to residential construction was driven 1.4% lower in July—the third consecutive monthly decline—by a 3.8% decrease in the building materials retail index. The services PPI is 3.0% higher than it was 12 months prior and 34.9% higher than its pre-pandemic level.

The PPI for ready-mix concrete (RMC) gained 2.5% in July and has increased in 17 of the last 18 months. The latest increase is the largest since prices climbed 3.7% in March 2006. The index has climbed 6.8%, year-to-date, the largest YTD July increase in the series’ 34-year history.

Concrete Products

The PPI for ready-mix concrete (RMC) gained 2.5% in July and has increased in 17 of the last 18 months. The latest increase is the largest since prices climbed 3.7% in March 2006. The index has climbed 6.8%, year-to-date, the largest YTD July increase in the series’ 34-year history.

Lumber

Note, those represent builder materials, different from raw lumber futures down to 598 from a peak of 1686.

The PPI for softwood lumber (seasonally adjusted) saw a modest increase (+2.3%) in July. Prices have fallen 28.2% year-to-date, although the extent to which the decrease has reached home builders and remodelers is unclear.

Gypsum Materials 

The PPI for gypsum products held steady in July after increasing 0.1% in June and 7.1% in May. and has soared 22.6% over the past year. After a quiet 2020, the price of gypsum products climbed 23.0% in 2021 and is up 7.6% through the first half of 2022.

Steel Mill Products 

Steel mill products prices decreased 3.7% in June following a 1.7% decline in June. over the two prior months. Although the index has fallen 10.1% since reaching its all-time high in December 2021, it is nearly twice the January 2021 level.

Paint

The PPI for exterior and interior architectural coatings (i.e., paint) increased 1.0% and 0.5%, respectively, in July. The PPI for paint has not declined since January 2021—the prices of exterior and interior paint have risen 50.7% and 33.8%, respectively, in the months since.

Freight Transportation 

Not only have freight costs increased, but the prices of services to arrange freight logistics have climbed steeply as well. Over the course of 2021, the PPI for the arrangement of freight and cargo increased 95.1%. Although prices have fallen 8.8%, YTD, they remain 63.0% above pre-pandemic levels.

Other than concrete, gypsum, paint, steel, transportation, and perhaps lumber (depending on passthroughs and time of orders), inflation is under control.

NAHB Sentiment and Price Cuts

The above charts explain why builders have only cut prices by 5 percent despite huge declines in orders and buyer traffic.

High rise construction, more dependent on concrete and steel may be having a rougher go of it.

For further discussion please see NAHB Sentiment Declines Eighth Consecutive Month Into Negative Territory