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.
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.
"I'm pretty much telling people that if I spent $500,000 for materials for a house last year, that same house is going to cost $600,000 this year," Gibson said. "What used to cost me $200 per square foot to build will now cost $220 to $240 a square foot -- for the same house."
Because some contractors didn't anticipate or couldn't pass through price hikes to existing customers, they say future customers will feel their pain.
Materials costs are "killing me," said Earl Tyson, owner of Maryland Carpenter Services Inc., a design/build company in Bethesda.
"For an example," Tyson said, "I signed a contract for a customer in Bethesda . . . five months ago and I have not yet purchased the material. I was about ready to, and then there was another hurricane coming" that made his suppliers warn that materials still wouldn't be available.
Tyson bemoans not only the rising prices of materials but also sharp increases in the price of oil. That's affecting what he is charged by subcontractors for "everything from the cost of . . . bringing materials to a job site to trash hauling" away from the site.
"The contractors have absorbed this financial obligation for the last six to eight months, but guess what?" warns Tyson. "When the new projects are coming up, the contractor is going to pass this cost along. . . . That's the kicker."
While rising materials prices and supply problems were not a showstopper for most Washington area builders and renovators before the hurricanes, Frances did temporarily shut down some operations here.
At the beginning of last week, for example, Wheaton Tile Center owner Richard Scherer said he couldn't find plywood for three scheduled projects "because they were shipping it all to Florida."
Scherer did finally track down some supplies, after calling three Home Depots. But he said, "The rising cost of plywood is probably more of an issue. . . . The contractors we talk to have all voiced a concern, but I don't think the customer has realized yet what it will mean."
Tom Bozzuto, president and chief executive of Greenbelt-based builder Bozzuto Group, said his materials costs "have probably gone up somewhere between 10 and 15 percent" in the last year.
"The increase in the price of lumber, in particular, has been dramatic," Bozzuto said. Lumber nationwide more than doubled in price for many uses this spring, then dipped a bit. Then it started to climb again. Lumber prices are traditionally erratic, but the unpredictable jumps during recent periods of high demand have particularly hurt, say industry analysts, and some types are steadily marching upward.
Plywood prices nationwide jumped about 22 percent from August 2003 to August 2004, according to the Bureau of Labor Statistics.
The price of oriented strand board (OSB), a compressed wood used in place of plywood for sheathing and flooring, has doubled in the past year, according to the labor statistics bureau. The peak price this year was more than $16 per four-foot-by-five-foot sheet in April, compared with about $6 the previous spring. OSB is now selling for about $12 a sheet.
"With about 300 sheets per new home, the increase from early 2003 represents about $1,800," said Carliner.
The composite price for wood framing, including studs, two-by-fours, and two-by-10s, was $458 per thousand board-feet on Sept. 10, compared with $382 per thousand board-feet a year earlier, according to Random Lengths, a Eugene, Ore., research firm.
Although construction material prices often fluctuate wildly during a year, said NAHB researcher Gopal Ahluwalia, any hikes in lumber costs "will have the largest effect" on consumers. Lumber represents 15 percent of the labor-and-materials costs of the average house, he said. And 85 percent of American homes are framed with lumber, the rest with concrete or steel.
If you don't see what the price of building materials has to do with the cost of your house, NAHB willingly will connect the dots for you.
Building materials account for a third of the cost of a new home, Ahluwalia said. Labor represents about 19 percent and land 24 percent. Another 3 percent goes to builder financing costs. Of the 21 percent remaining for overhead and administration, about 9 percent is builder profit.
While prices of materials routinely go up and down for many supply and demand reasons, "what is fascinating" this time, said builder Bozzuto, "is that we are being hit all across the board."
He blamed the increases on record demand for housing here and in China and on oil prices, which he noted boost more than transportation, delivery and machinery fuel costs.
"Oil affects windows, laminates for countertops, and roofing materials" because they're made with petroleum-based products, Bozzuto said.
Higher oil prices are also "apparently . . . spilling over into plastic pipe products," according to this week's edition of trade publication Engineering News-Record.
The magazine says prices for PVC water pipe jumped about 4 percent this month, "pushing prices 12 to 15 percent above a year ago." Prices for copper pipe products were about 35 percent higher than a year earlier.
NAHB's latest data, from a nationwide survey in July, found builders reporting shortages of cement, gypsum wallboard, OSB, steel framing and insulating materials. The trade group listed a variety of causes, from the building booms here and abroad to duties on imports to regulatory restrictions that are preventing manufacturers from opening new plants.
The most demand pressure, the group said, was for cement, a commodity heavily influenced by unprecedented building in China and by China's domination of shipping vessels. China's near-monopoly means shipping rates have doubled in the past year and exports of cement to the United States and other countries have dropped.
Cement is the key ingredient in concrete, a basic building material used mainly for foundations, driveways and sidewalks. Cement makes up about 25 percent of the cost of concrete.
Some builders discount the significance of what they believe could be temporary price spikes and shortages in materials.
"If you plan properly, it doesn't have to be an acute problem," said Joe Keppler, who runs the materials buying co-op for the Northern Virginia Building Industry Association's Custom Builders Council. "It's going to take longer to complete projects right now, but we're thinking that the materials side is a flash in the pan, a correctional kind of thing."
Lack of labor is "more of an issue," Keppler said. "It's been here for a while and getting worse."
Still, Keppler says that in 31 years in the business, "I've never seen anything like this," in terms of materials costs.
"As long as demand continues, we'll be stretched," he said.
Keppler noted that co-op members have some protection from price hikes because they have negotiated long-term contracts at fixed prices for materials, "but if a builder hasn't protected themselves through contracts, they're paying a premium."
Manufacturers also note that bigger customers, such as production home builders, get first dibs when materials run short.
Consumers will be understandably unhappy if prices rise and deliveries slow, says Freddie Mac deputy chief economist Amy Crews Cutts. "That will create a lot of frustrated builders and buyers. . . . [But] it may impact the home improvement industry more, because people more frequently will delay projects" if prices seem too high. Those buying new houses usually don't have as much flexibility to delay, she said.
The affordable housing industry will be hit hard by the materials shortages and price hikes, said George Rothman of Manna Inc., a Washington-based nonprofit developer that builds and renovates homes for low- and moderate-income families.
"Wreaking havoc may be too strong a term to use, but the magnitude of the increases is astounding," said Rothman.
The rising prices will shave Manna's small surpluses, said Rothman. To keep pace, "we've had to raise purchase prices more than we would hope to," meaning the target buyer "has to have a higher income."
To maintain its goal of providing housing to low-income buyers, Rothman said his group will have to raise more money from the D.C. government or other grant makers. "We're very concerned about prices going up, but there's not much we can do about that."