Markets & Economy

Material cost increases on horizon for homebuilders

Housing start volumes mean material producers and suppliers will start raising prices

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The pace of recovery in private residential construction has been choppy; however, housing starts will total 1.15 million in 2015 and 1.25 million in 2016.

According to Moody’s, these volumes mean the sector will remain positive for building material producers and suppliers. In other words, homebuilders can expect to see material price increases in the next 12 to 18 months if producers plan to grow operating incomes by 10 percent during the period.

In May, Moody reports total housing starts were up 5.1 percent — and total permits rose 26.7 percent — when compared to the same period last year.

“We expect private residential construction to remain healthy through 2015 supported by employment gains and low mortgage interest rates. It is further supported by pent-up demand stemming from low levels of construction activity over the last several years,” stated Moody’s in a recent report eyeing the U.S. building materials industry.

Last month, data released by the Associated General Contractors showed that most materials commonly used in single-family construction actually dipped in pricing during April.

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Both lumber and plywood dipped by 3.7 percent during the past 12 months, while the cost of insulation dropped by 2 percent. Roofing products slid in pricing by 1.9 percent. However, the value of gypsum wallboard rose by 2.3 percent. If homebuilding activity increases or commercial construction volumes rise, expect some of these materials to escalate in cost.

Despite a housing market that is trailing historical norms and will likely see cost increases, things seem to be pretty good for national homebuilders.

Lennar Corp. recently reported a 32 percent increase in revenue during the second quarter of this year, while Pulte Homes’ and M/I Homes’ stocks are up.

For Lennar, revenues from home sales increased 30 percent to $2.1 billion from $1.6 billion, primarily due to a 20 percent increase in the number of home deliveries, which climbed by 21 percent to 6,015. The average sales price of a Lennar-delivered home also increased to $348,000, up from $322,000 in the previous year.

Email Erik Pisor.


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