From: The Philadelphia Inquirer

3/27/05


http://www.philly.com/mld/inquirer/c...e/11211557.htm

BUILDERS' BLUES

By Alan J. Heavens

Inquirer Real Estate Writer


In spring, a lumber-mill operator's fancy turns to thoughts of the
profits to be made as construction and remodeling season gets into
full swing.

The same thoughts fill the heads of just about every provider of
products consumed by the building industry each year.

Concrete, lumber, bricks, insulation, stone, steel and plastic (for
vinyl siding) are used in great quantity in every new house and
renovation job. Shortages and price increases affect everyone, from
the major builder down to the weekend do-it-yourselfer.

Michael Carliner, an economist with the National Association of Home
Builders (NAHB), says that whether material costs increase this year
or not, builders probably will raise their prices.

"Most new homes these days are pre-sold, so last year's prices were
based on what builders thought would happen, and they ended up getting
squeezed," Carliner says.

The NAHB estimates that material prices boosted the cost of building a
house by $5,000 to $7,000 last year. "This year, many builders are
building a contingency factor into the sales contracts, although we
don't think the increases in material costs will be as great as in
2004," Carliner says.

Why? Because the residential-construction industry is anticipating a
slight drop in the number of housing starts this year. There is a
growing belief among economists that 30-year fixed mortgage rates will
increase enough in 2005 to reduce sales.

Economists had predicted that for 2004, as well, but long-term rates
declined further, boosting new- and existing-home sales to record
levels.

Some builders remain willing to bite the bullet.

"We have no contingency clause in our contracts," says Gary G. Schaal,
vice president of sales and marketing for Orleans Homebuilders, the
region's fourth-largest builder. "We do a good job pricing, and we
should get the houses done in the time allotted by the contract to
keep costs in line.

"If we don't, shame on us."

According to February's Producer Price Index, released Tuesday, prices
for concrete products rose 1 percent last month. The price of steel
dropped 0.2 percent in February from January; lumber rose 6.1 percent;
and asphalt rose 3.2 percent.

Compared with February 2004, the price of steel was up 37.7 percent;
concrete products, 9.4 percent; lumber, 10.8 percent; and asphalt, 6.3
percent.

Area builders interviewed say there is a shortage of masonry products,
bricks, concrete products, and oil-based products such as vinyl for
siding and pipes, asphalt for roads and driveways, and roof shingles.

The price of oil also factors into transportation costs. Some major
builders, such as Toll Bros., have regional centers supplying
materials to job sites, to reduce transport costs.

Drywall prices remain high, although supplies continue to be adequate,
area builders say. The typical 2,272-square-foot new home uses about
8,100 square feet of drywall for walls and ceilings.

In the fourth quarter of 2004, gypsum wallboard manufacturer U.S.
Gypsum reported a 25 percent price increase over the fourth quarter of
2003, for an average price of $132.02 per thousand square feet.

Gypsum wallboard profit margins improved despite higher energy and
waste-paper costs. Company chairman William C. Foote said the higher
prices reflected strong demand.

The wallboard industry as a whole was producing at 90 percent of its
capacity to meet that demand. Some experts believe prices will
increase 15 percent in 2005.

There continue to be shortages of brick, especially in the South,
where home builders use 33 percent of the 6.4 billion bricks produced
for residential construction nationwide in a typical year, according
to the Brick Industry Association. By comparison, the mid-Atlantic
region uses just 4.1 percent of the brick produced annually.

Demand for brick has been increasing since 1999. Industry
consolidation has reduced the number of plants over the years from
3,000 to 204, but a new factory can produce higher volumes than the
older ones.

Still, because brick factories once could be found in just about any
part of the country, fewer plants mean that transportation costs are
more of a factor.

Demand for lumber appears lower and prices seem to be easing, at least
for now. Random Lengths of Eugene, Ore., which tracks lumber prices,
reports that prices of both framing lumber and sheathing (plywood and
oriented strand board) have decreased a bit in the last few weeks.

"The delivery price for six months from now is lower than today's
price," the NAHB's Carliner says, acknowledging that there is "still
some upward pressure on wood."

Lumber is the biggest factor in the price of residential construction,
since the typical new house eats up 13,837 board feet of framing
lumber and 13,118 square feet of sheathing.

Random Lengths' composite price for framing lumber (also known as
dimensional lumber) is $420 per 1,000 board-feet, compared with $392 a
year ago. But that price reflects a recent drop of about $8.

The composite price for sheathing is $444, compared with $583 per
1,000 board-feet a year ago, Random Lengths reports.

Rising concrete prices are worrisome, because, as Marshal Granor of
Granor Price Homes says, "we like to build basements."

The Portland Cement Association, which represents the nation's major
producers, says that their prices aren't responsible for boosting home
costs.

Concrete costs represent slightly more than 4 percent of estimated
overall home-construction costs and less than 2.5 percent of the price
of a new home on the market, estimated by the Census Bureau at
$274,200, says Ed Sullivan, the association's chief economist.

Moreover, he says, concrete has experienced a real price increase of
0.1 percent during the last four years, after discounting for
inflation.

Carliner, of the NAHB, says cement and steel shortages are more a
reflection of global demand than just U.S. consumption.

"China has been a central factor in the shortage of steel and cement,
but the government there has been trying to slow down construction to
rein in the economy," he says.

Steel doesn't play much of a role in residential construction here,
other than in the production of appliances. But with the U.S. economy
beginning to heat up, Carliner says, there's bound to be more
commercial construction, and concrete and steel availability may
become problematic.

Rebuilding from last year's hurricanes and the damage they wrought in
Florida raised some concern that there would be major shortages of
concrete products - of which Florida imports a huge amount - and that
prices would be affected.

That hasn't occurred.

"What happened," Carliner says, "was that the hurricanes put a lot of
projects on hold - until after the roofs were replaced on a couple of
hundred thousand houses."


--------------------------------------------------------------------------------
Contact real estate writer Alan J. Heavens at 215-854-2472 or
. Read his recent work at
http://go.philly.com/alheavens.

Tom Watson - WoodDorker
tjwatson1ATcomcastDOTnet (email)
http://home.comcast.net/~tjwatson1/ (website)

"Tom Watson" wrote in message

BUILDERS' BLUES

Same basic building plan: 2001 framing/cornice cost (material and labor)
just under $40K. December 2004 framing/cornice cost (material and labor)
just over $52K ... in both the labor cost was identical per square foot!
Just did the prelim budget for another almost identical house in the permit
stage and almost afraid to bid out the material takeoff.

.... and it's not just the material costs that are high. You need to go to
school to keep up with the increasing bureaucratic red tape.

--
www.e-woodshop.net
Last update: 11/06/04

Do you think that that's a reflection of lack of skill or demand for
labor? I'm guessing by Tom's article that new home starts are still
doing pretty well, cuz of good interest rates.

I know, I know, you can't find good help anymore, but employers have
been saying that ever since I can remember. But, with the cost of
_everything_ else in construction going up, why has labor not gone up,
even to match inflation?

I'm no economist, and I don't have a theory. I was wondering if
somebody else did.

-Phil Crow

wrote in message

But, with the cost of
_everything_ else in construction going up, why has labor not gone up,
even to match inflation?

That's easy, down here anyhow ... an unlimited supply of workers more than
willing to work for minimum wage. Most of these folks come from south of the
border, are happy to work, and the reality is that if it wasn't for them
many of us would be living in cardboard boxes we couldn't afford.

--
www.e-woodshop.net
Last update: 11/06/04

Swingman wrote:

wrote in message


But, with the cost of
_everything_ else in construction going up, why has labor not gone up,
even to match inflation?


That's easy, down here anyhow ... an unlimited supply of workers more than
willing to work for minimum wage. Most of these folks come from south of the
border, are happy to work, and the reality is that if it wasn't for them
many of us would be living in cardboard boxes we couldn't afford.

SOme of these illegals work for less than mionimum wage. The reality is
that they drive down the wages for the rest of us. If these illegals
were gone, yes our houses would cost more, but the rest of us would be
earning more also and would more likely than not be able to afford the
houses.

Oh sure, a few contractors wouldn't be wearing their steel and gold
rolexes, and driving around in brand new F350 Super Duty power stroke
deisel trucks, but while they put up their money at risk, workers risk
not getting paid for their labors and getting injured or killed on the
job. It's all about "balance" and right now things are way out of
balance with all the illegals coming in and depressing wages.

wrote:

....
I know, I know, you can't find good help anymore, but employers have
been saying that ever since I can remember. But, with the cost of
_everything_ else in construction going up, why has labor not gone up,
even to match inflation?

I'm no economist, and I don't have a theory. I was wondering if
somebody else did.

A significant part is it's easier to cook a little meth and make far
more than any laborer wage plus if welfare and unemployment are nearly
as much as working, why work? Add in uncontrolled undocumenteds and
employers willing/desiring to get their labor as cheaply as possible and
there's a good start...

Duane Bozarth wrote:

wrote:

...

I know, I know, you can't find good help anymore, but employers have
been saying that ever since I can remember. But, with the cost of
_everything_ else in construction going up, why has labor not gone up,
even to match inflation?

I'm no economist, and I don't have a theory. I was wondering if
somebody else did.


A significant part is it's easier to cook a little meth and make far
more than any laborer wage plus if welfare and unemployment are nearly
as much as working, why work? Add in uncontrolled undocumenteds and
employers willing/desiring to get their labor as cheaply as possible and
there's a good start...

Yes cooking up some meth can earn you more green that a laboring wage
will earn you, but you have more risks cooking up meth, and you end up
maybe doing jail time and having to **** away your money on lawyers when
you get arrested.

What planet are you living on? Welfare and unemployment aren't nearly
as much as working? Many people on welfare don't have employment skils
or if they do, they don't have a way to get to work or can't afford day
care for kids, etc.

So let's work on the problems we have - sending jobs overseas and
letting all the illegals in to work on those jobs we haven't outsourced
would be a good place to start. Let's seal up the borders and keep
those illegals (and the terrorists and drug runners) out, stop sending
jobs overseas (no tax breaks for corporate traitors), and restore some
balance to the employer vs. employer transaction.

USENET READER wrote:

Duane Bozarth wrote:

wrote:

...

I know, I know, you can't find good help anymore, but employers have
been saying that ever since I can remember. But, with the cost of
_everything_ else in construction going up, why has labor not gone up,
even to match inflation?

I'm no economist, and I don't have a theory. I was wondering if
somebody else did.


A significant part is it's easier to cook a little meth and make far
more than any laborer wage plus if welfare and unemployment are nearly
as much as working, why work? Add in uncontrolled undocumenteds and
employers willing/desiring to get their labor as cheaply as possible and
there's a good start...

Yes cooking up some meth can earn you more green that a laboring wage
will earn you, but you have more risks cooking up meth, and you end up
maybe doing jail time and having to **** away your money on lawyers when
you get arrested.

What planet are you living on? Welfare and unemployment aren't nearly
as much as working? Many people on welfare don't have employment skils
or if they do, they don't have a way to get to work or can't afford day
care for kids, etc.

So let's work on the problems we have - sending jobs overseas and
letting all the illegals in to work on those jobs we haven't outsourced
would be a good place to start. Let's seal up the borders and keep
those illegals (and the terrorists and drug runners) out, stop sending
jobs overseas (no tax breaks for corporate traitors), and restore some
balance to the employer vs. employer transaction.

Well, this part of the planet is rife w/ all of the above I mentioned
simply from observation...

The chances w/ meth, etc., are certainly well worth taking for
many--certainly the return/risk ratio is high enough to keep large
numbers going and there's no dearth of new ones to take over the the
ones that do get caught. Of course, the likelihood is that the same one
has to get caught at least several times in order to be put out of
circulation for any real period. Plus, one real problem w/ hiring labor
is that as soon as they get a paycheck they're gone for who knows how
long 'cause they're strung out...

While granted the unemployment/welfare cash income isn't as good as a
working wage in cash dollars, w/ halfway houses, homeless shelters, food
stamps, no or earned income credits, etc., etc., etc., I see quite
sizable numbers able to live well enough that they have no incentive to
work steadily...certainly not to be reliable employees.

Construction and other labor-intensive jobs are not going
overseas...those kinds of jobs aren't the ones I was talking about.

If it weren't for the illegals, it would be almost impossible to find
farm labor here. I require them to apply for status but, of course,
many don't hang around long enough to get it before taking off. On
occasion one will find one who has a green card, but they usually will
end up at the packing plant or someplace that can pay benefits if their
skills are anything at all marketable. Most of these are hard workers,
but communication is a real problem unless one is fluent in their
language and I'm an old-fogey who's too set at this point to learn...

"USENET READER" wrote
stop sending jobs overseas (no tax breaks for corporate traitors),

I always get a chuckle when people whine about companies using *legal means*
to lessen the impact of outright theft, through taxation, the efforts of
ones toil and call them traitors. These same folks think Bill Gates has too
much money.

and restore some
balance to the employer vs. employer transaction.

Then why don't you go start your own company and show all the rest of us how
to do that?

wrote:

Do you think that that's a reflection of lack of skill or demand for
labor? I'm guessing by Tom's article that new home starts are still
doing pretty well, cuz of good interest rates.

I know, I know, you can't find good help anymore, but employers have
been saying that ever since I can remember. But, with the cost of
_everything_ else in construction going up, why has labor not gone up,
even to match inflation?

I'm no economist, and I don't have a theory. I was wondering if
somebody else did.

-Phil Crow

My theory is that you go out and look at the makeup of building crews
today - they are almost all mexicans - probably all illegal - who will
work cheaper. The growing flood of illegal alien labor is keeping the
cost of labor down, not even keeping pace with inflation.