Building-material costs on the rise may dampen the new-home market

Rising demand from homebuyers eager to take advantage of record-low mortgage-interest rates, and supply problems because of the shutdown of manufacturing plants in recent years has caused the cost of building materials to rise.
BY MARY SHANKLIN Modified: December 28, 2012 at 2:32 pm •  Published: December 29, 2012
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Just as the housing market is on the mend, prices for drywall, cement and lumber are fast outpacing inflation.

At a time when inflation is running about 2 percent, lumber prices throughout the country are up 35 percent from a year ago, according to the National Association of Home Builders.

The cost of interior walls for new homes has increased more than 14 percent from November 2011, according to a report by Associated General Contractors of America. And suppliers of that drywall, also known as gypsum board, have put builders on notice that those prices may spike an additional 30 percent in the coming year.

“We did get notice the gypsum board would be going up a substantial amount, and we are seeing pricing pressure from other suppliers and from labor,” said Ken McDonald, president of David Weekley Homes' Orlando division.

“It's a balancing act. We will be raising prices to cover the increases. We've been doing that this year.”

The pressure on prices is mainly the result of two things: rising demand from homebuyers eager to take advantage of record-low mortgage-interest rates, and supply problems because of the shutdown of manufacturing plants in recent years.

McDonald said the price increases also reflect a home-construction industry that is trying to rebuild its profit margins, which were decimated by the housing slump and Great Recession.

“Pricing all went to an all-time low, and now business is trying to get their margins back,” McDonald said.

Nationally, new-home prices hit a peak of $257,000 in April 2006 and a low of $205,000 in March 2009, according to the U.S. census.

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