Sitting down? Good.
Get ready for new-home prices and remodeling costs to jump even higher -- not only because of unexpected continuing demand in America, but also because of the construction explosion in China, record worldwide oil prices and, now, a triple play of devastating hurricanes.
It's not clear exactly how much more local home buyers and renovators will have to pay, but builders routinely refer to the events this spring and summer as a big deal. They often use the cliche "the perfect storm" to describe the confluence of events.
China's Expansion Squeezes Cement Supply
China's demand for cement comes up often in discussions with home builders about rising materials costs.
With the world's fourth-largest economy in the midst of an unprecedented expansion, there's not much left over for others, say the analysts.
China is taking about 40 percent of the world's cement production and about a third of its steel, according to the National Association of Home Builders. And, perhaps more important, its demand for cement and other products is affecting the shipping fleet that used to carry materials here.
"The ships that were being used to transport cement here are being diverted to the Orient, to China," NAHB chief executive Jerry Howard said. "It's more attractive financially for them to make a run from Southeast Asia . . . and from Greece [two big cement-exporting nations] to China than to ship to the United States."
America imports about 20 percent of the cement used here, but Florida, the hottest building market in the nation, imports about 40 percent of its supplies. Florida's demand for cement is high because building codes require concrete framing materials to protect against hurricane damage.
Before this year's hurricanes, the NAHB said its survey of builders showed 41 percent of respondents citing cement shortages, a huge jump from May, when 11 percent of those polled reported problems, and from March, when only 3 percent of builders noted difficulties.
The Portland Cement Association, a trade group representing U.S. and Canadian companies, last month said that 29 states were experiencing shortages.
Cement industry experts say the recent hurricanes could ease the cement problem temporarily because Florida builders can't work, at least for a little while. But they anticipate that reconstruction and the resumption of new building will quickly push demand back up.
"Locally, we will probably feel the impact of the hurricanes when the Florida reconstruction process gets into full swing. . . . There will be significantly more demand [for cement] then," Howard said.
"It's the worst time for it to happen because every region and every market sector is in the height of their building cycle," he said.
Cement manufacturers say the mild winter this year exacerbated their problems. Because builders kept building in the winter, cement plants didn't have time to build inventories as they usually do.
"It's almost impossible to get concrete," Potomac builder and remodeler John L. duFief said. "Where it used to take two days or a day to get an order in, it takes five days."
Because of the backlog for orders and problems getting cement shipments across country by rail, building contractors say they're stretching their projected construction schedules.
Cement producers don't see much hope for prices to drop or supplies to grow soon.
Dennis Skidmore, senior vice president of the St. Lawrence Cement Group, which has a large facility in Hagerstown, predicts the shortage will "worsen significantly this month and next because it's the peak construction season, but all of us have zero inventory."
Skidmore added that he anticipates similar conditions in the marketplace in 2005.
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Even before the hurricanes, the nation's builders were warning of hefty increases in materials costs and supply shortages.
Just before Charley, Frances and Ivan plowed through the Southeast, the nation's biggest home-building trade association said "rising wholesale prices of building materials have added $5,000 to $7,000 to the cost of building an average new home." That's about a 5 percent jump.
The National Association of Home Builders also warned that supply shortages caused by record demand and lack of new production capacity could upend the national housing market. "Left unchecked, these factors could result in serious disruptions to the housing market" nationwide, Jerry Howard, chief executive of the District-based group, said in an Aug. 10 statement. That, he added, would jeopardize the best thing the national economy has had going in the past several years.
NAHB is lobbying the administration to lift duties on imported Mexican cement and Canadian lumber, unsuccessfully so far.
Howard said later that "it's unlikely, in most cases," that higher materials costs "have been passed on to the consumer because many of them would already be under contract," and the contract language generally sets a firm purchase price. "But inevitably if these shortages persist," he said, "ultimately the consumers will be paying more."
Last week NAHB economist Michael Carliner said that the shortages and high prices are generally continuing -- in steel, cement, insulating materials, gypsum products such as drywall, and many types of lumber, including plywood and framing materials. Carliner said there is also some evidence that shortages of clay brick could be spreading in the Southeast and Midwest. Until recently, the brick shortage seemed limited to Tennessee and Kentucky.
This year's big storms also have caused market problems.
The three huge hurricanes so far -- and any more that turn up before the season ends Nov. 30 -- likely will redirect more basic raw materials to the areas that are being rebuilt, say industry analysts.
Also, although Howard said most home construction contracts don't allow pass-through of higher materials prices, some do, particularly those from custom builders and high-end renovators.
Local builders and renovators say their prices will escalate because of the supply problems and the hurricanes. In some cases, builders say they are already experiencing much larger price increases than NAHB estimated.
District-based custom builder Jim Gibson said his materials costs are up about 20 percent overall from a year ago.
