Abstract:
There's no relief in sight for remodeling firms that have been hit hard by the increased cost of building materials, says economist Ken Simonson. Simonson, chief economist for the Associated General Contractors of America, said that some of the increases may level off as the housing market cools due to the highest mortgage interest rates in more than four years.
Publication Date:
Fri, 2006-06-30 19:00
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Simonson, chief economist for the Associated General Contractors of America, said that some of the increases may level off as the housing market cools due to the highest mortgage interest rates in more than four years. But he also noted that most of the price increases are tied to strong U.S. and world demand for materials and freight transportation, so construction materials costs will continue to outstrip the overall rate of inflation.
In light of that trend, Simonson said public agencies, private owners and contractors need to "face this new reality."
Simonson made his comments after the Bureau of Labor Statistics issued its report on the producer price index (PPI) for May.
Overall producer prices increased only 0.2 percent in May and 1.5 percent in the last year (outside of food and energy). But the PPI for construction materials leaped 1.2 percent in May and 7.8 percent over the last 12 months, including a 12-month increase of 8 percent for new single-unit residential construction.
The highest increases for materials in the last 12 months were 87 percent for copper and brass mill shapes, 48 percent for asphalt, 40 percent for diesel fuel, 26 percent for gypsum products, 18 percent for plastic construction products and 15 percent for cement.
"Budgets must allow for more inflation, for purchasing materials earlier, and for sharing the risk and reward from price volatility," he said.
Availability and delivery of building products has also been affected, with the longest delays in fabricated steel products. The high cost of diesel fuel has also led to delivery surcharges of up to 22 percent.
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