It’s a telling sign when building product manufacturers that are normally eager to talk up their companies become tight-lipped when asked about materials prices. After a year of increases in many product categories, prices are finally starting to retreat. Copper, asphalt, and lumber prices all dropped in October (the most recent month for which data is available), and some of those decreases began even a month or two earlier.
This is welcome news to remodelers, but less so for manufacturers and dealers. While some prices still remain higher than they were a year ago, every dollar an index drops bring suppliers’ profits down as well.
“We’ve been impacted by increases in energy costs, increases in raw materials costs, and increases in logistics due to transportation costs,” says Bob Gardiner, vice president of marketing for CertainTeed Roofing. “It’s been an issue for us and for all manufacturing.” As it relates to the asphalt roofing business, Gardiner says that significant increases in the cost of asphalt have driven price increases for finished products such as shingles. “At the same time, we try to improve our manufacturing, and our efficiencies in terms of how we make the products, to help reduce the impact on our customers,” he says.
Remodelers have turned to their dealers for pricing help as well. “We deal individually with each builder, depending on what kind of work they’re doing,” says Bill Cady, president of 5th Avenue Lumber, in Columbus, Ohio. “Our salespeople keep them informed on where the market is and where it’s going, and give customers the opportunity to lock in prices for 30 days to help offset fluctuations when it looks like prices are going to rise.”
Cady says he’s been watching the lumber market go up and down, “and lately it’s been down, as a rule of supply and demand.” With construction all but stalled, the demand for lumber has dropped, and prices have followed suit. Reports from lumber market analysts at Random Lengths mark historic lows.
“We’re in the middle of a historical downturn,” says Random Lengths editor Shawn Church. “The only other in modern history would be in the early 1980s. If you compare today’s prices with inflation adjusted, prices are far lower now than they were then. In some cases, you don’t even have to adjust for inflation — the prices are just that low.”
The Numbers
Probably the most widely noticed recent price decrease is that of gasoline. The mid-December national average was just $1.69 per gallon, compared with $3.00 a year earlier. Remodelers were hit hard by previously record prices, with 57% of Remodeling ReaderPanel respondents saying that they had had to absorbed at least a portion of the cost, while others had passed the cost onto customers through markups (51%) and fuel surcharges (10%). As such, lower prices will have a positive impact on everyone’s bottom line.
In terms of commodities, ReaderPanel respondents reported seeing the biggest price increases in copper and roofing materials — two areas that are also beginning to see declines. According to the October 2008 Producer Price Index, asphalt prices fell 18% at the refinery. In the coming months, analysts say this drop will be reflected in finished goods including asphalt roofing, which rose 7.3% the same month. On the copper front, base scrap fell for a third month in a row by nearly a third (29.4%), and copper ore was down 4.4% in October after dropping 10.4% in September. Random Lengths reported its November Framing Lumber Composite price as $224, a historic low, while the structural panel composite came it at $270, just $10 higher than its low of $260 reported in October 2006.
“These low prices are good for any buyer or consumer buying wood products today; however, remodeling is also being affected by the housing downturn,” Church says. “There’s usually remodeling that’s done just before someone sells and just after they buy a house, but with so little buying and selling, that type of working isn’t happening as much.” Similarly, Church notes that many of the spending dollars for previous remodels came from refinancing activity, which has “come to a screeching halt.” Still, he says that remodeling and replacement work, as well as non-residential construction, have not retreated quite like the residential new-construction market.
Church adds that the general consensus in market forecasting shows that prices, and the housing market in general, will continue to trend downward into 2009, likely beginning a rebound in 2010. For the time being, remodelers will have to reconcile having the ability to acquire materials at lower prices with the fact that there will be fewer jobs on which to use those materials.
Gardiner agrees that a long view of recovery is key. “What’s clear is that no one yet has been able to predict the rate at which the housing market went down, or when it will return,” he says. “It’s logical and probable that there will be an extended period of economic depression, after which we’ll see a hopeful recovery. Not a quick one, but a hopeful one.”
