Housing input prices resume rise
The risks of underestimating job costs continued to grow in September as prices for materials used to build, remodel, repair, maintain and improve homes increased 0.2 percent after declining each of the prior two months, according to the latest producer price index (PPI) released by the Bureau of Labor Statistics.
Housing input prices resume rose 5.2 percent in the first nine months of 2018 and is up 10.2 percent since January 2017, according to an Oct. 10 posting to the National Association of Home Builders Eye on Housing blog written by NAHB director of tax and trade policy analysis David Logan.
Some modest price reversals
Logan noted that while there were dips in prices of some important construction materials from August to September, housing input prices overall remain significantly higher than a year ago. Gypsum prices, for example, reversed trend in September, falling 0.1 percent (seasonally adjusted) after a combined increase of 6.1 percent over the prior two months. However, they were up 7.2 percent in the first nine months of the year and have risen 8.1 percent since September 2017.
The September PPI release continued to capture decreases in prices paid for softwood lumber that began in mid-June, wrote Logan. However, the average price paid for softwood lumber in 2018 remains the highest on record according to Random Lengths data — 18.7 percent above the prior record set in 1997.
Among the housing input prices, the index for prices paid for millwork were flat in September but up 5.7 percent compared with a year earlier. While the price index for plywood decreased by 2.0 percent on top of a 3.4 percent decline in August, prices remained 11.6 percent above levels paid a year earlier.
Logan noted that OSB (and waferboard) decreased for the second consecutive month (-5.2 percent, not seasonally adjusted). Prices are down 16.4 percent since July and have declined in five of the past 12 months.
Ready-mix concrete (RMC) prices, meanwhile, reversed a four-month trend of price declines by climbing 0.4 percent (seasonally adjusted) from August. That put the PPI for RMC back in line with the long-term trend following an unusually high monthly increase of 3.3 percent in March. The index for construction sand, gravel and crushed stone rose 0.6 percent from August and 3.5 percent from a year earlier.
Builders’ prices continue to lag
Ken Simonson, chief economist for the Associated General Contractors (AGC) of America, said PPI for goods used by all construction industries rose 7.4 percent in the year ended Sept. 30, 2018 due to double-digit increases in some commonly used construction materials.
An index that measures what contractors say they would charge to construct five types of nonresidential buildings, meanwhile, rose just 3.5 percent over the same period. The prices contractors say they would charge for maintaining or repairing nonresidential buildings, rose just 1.6 percent year over year.
Those numbers indicate contractors absorbed more of the costs than they were passing on to owners — a trend that has been going on since the summer.
“The new construction input costs data likely under-reports actual price increases, since federal officials collected most of their data in the first half of the month — before new tariffs affecting many construction materials started,” said Simonson. “Contractors are paying more for the materials they use and workers they employ but aren’t able to pass most of those new costs on to their clients.”
Trade groups have been urging contractors to price the risk of higher material costs into bids and improve cost estimates since the Trump administration signaled that it would begin taxing Chinese imports in a bid to narrow its massive trade surplus with the United States.
Diesel fuel, steel pipe and tube, asphalt paving mixtures and aluminum products were among the diverse products that contributed to the large year-over-year cost increases. Simonson pointed out that from September 2017 to September 2018, there were producer price index increases of 29.3 percent for diesel fuel, 22.1 percent for steel pipe and tube, 11.7 percent for fabricated structural metal, 11.2 percent for asphalt paving mixtures and blocks and 10.7 percent for aluminum mill shapes. Additionally, the administration recently imposed an interim tariff of 10 percent on $200 billion worth of Chinese imports, including products important to the construction industry, and plans to increase the rate to 25 percent in the new year.