An early spring surge in home building and buying after a long recession has touched off a round of price increases local builders say could endanger the still-fragile housing recovery.
Bethesda developer Bruce C. Winston said hikes of about 25 percent in drywall prices in recent months and of 15 percent in lumber since November have caused him "deep concern that the recovery will be short-lived. . . . "
"These are price increases of a size we haven't seen in quite some time," said Winston, who is president of the Suburban Maryland Homebuilders Association. In a recent newsletter, he urged suppliers, subcontractors and builders to hold down prices.
An economist for the National Association of Homebuilders said that, in general, every 10 percent increase in the price of finished lumber adds one percent to the cost of a home. The association predicts that materials prices nationwide will rise from 5 to 10 percent during 1983, slightly ahead of the predicted 5 percent rate of inflation.
"We're hopeful the current price hikes are a one-round increase. If not, we can kiss the recovery goodbye," said economist Bob Sheehan.
Housing starts throughout the nation rose slightly last month, following a 33.4 percent leap in January over December, the Commerce Department reported this week. While builders welcomed the news, the gain fueled some fears that low supplies of materials and a scattered labor force could bring on more price hikes.
Winston and other developers predicted costs will keep going up. "We're anticipating increases in almost every category as the year proceeds," said Washington developer Stanley Halley.
In Northern Virginia, said builder L. Randolph Williams, "Most of our suppliers and subcontractors have hit us with about 10 percent price increases across the board this spring. We have not raised the prices of our houses by that amount yet because we have included in the price of houses . . . some heavy financing costs for buying down the mortgages. We are not having to do that anymore." He added that he does not expect builders to absorb any additional increases.
"If the pace of demand for new homes continues, there will be some pressure on suppliers and subcontractors that will cause prices to rise more," said Williams, who is head of the Northern Virginia Builders Association.
The costs of lumber, plywood and drywall have climbed along with the increase in home sales and construction starts this year, as suppliers and developers try to build up supplies they allowed to dwindle during the recession and to make up for lost profits of the last few years. The price increases exceed the traditional spring price increases in lumber and other supplies, builders said.
The volatile timber industry--its mills and labor force decimated by the recession--has sent lumber prices on a rollercoaster ride in recent months, according to a congressional aide whose boss represents a major timber producing state.
"There was a panic . . . buying period in January. Housing starts were up and inventories low," said Ray Wilkeson, legislative assistant to Rep. Ronald L. Wyden (D-Ore.). "There was a perception of not enough lumber, but it was more a perception than a reality. Everybody was scrambling to buy lumber."
At the end of 1982, the price tag on a thousand board feet of framing lumber, the type used in home construction, was $195. The price soared to $247 on Jan. 21, then plummeted to $218 on March 4. By last week, the price had gone back up to $227 per thousand board feet. These prices are charged at the sawmills for a composite of nine key items in the national lumber market and from all sections of the nation, compiled by Random Lengths, a consulting firm based in Eugene, Ore. A board foot represents a piece of lumber that is a foot wide, a foot long and an inch thick.
After similar gyrations, the price of plywood had settled at $221 per thousand square feet last week.
With shipping and other costs added, the prices of framing lumber ranged from $350 to $400 per thousand board feet at a major Northern Virginia lumber supplier. The price of the most popular piece of plywood was $315 per thousand square feet.
Wood products make up about 14 percent of the final selling price for the average single family house, according to the National Forest Products Association, making the timber industry a major force in the home construction industry.
Another key ingredient, the land on which the homes are built, is expected to rise in price as builders gear up for the renewed demand.
Lots are getting scarce and prices are going up, according to James M. Wooten, president of the Mortgage Bankers Association. The increases, probably around 10 percent, will be passed on to home buyers and will vary throughout the nation, he said.
Wooten also predicted that labor costs may rise as builders try to reassemble a labor force scattered into other jobs by the recession.
Washington developer Stanley Halley said, "This is one of the long-term repercussions of the recessions that affect the building industry. Workers just get out of the business. When things pick back up they stay in jobs they have because of the jo security," said Halley.
Another factor in the price surge has been price surge has been price hikes by suppliers who "have held prices in line for the last year or so," said Williams, the Northern Virginia developer. "They have been absorbing price increases. Now . . . they are trying to get back up to a more normal profit margin."
Williams said many builders have been doing the same, holding profits to 5 percent or less, while "an average of 7 percent of the selling price of a house would be a normal" profit.
Some industry spokesmen are cautioning against price increases too early in the housing recovery. Bethesda's Bruce Winston is among them. "There seems to be a general attitude among many of our members that the time to make big profits to make up for any losses sustained over the past years is during the upcoming 'boom,'" he said. "I believe that if we live by this attitude over the next few years, we will die with this attitude."