There is good and bad news regarding construction material costs. Lumber costs are the lowest seen in a very long time; however, the price of steel is at an all-time high.
The high cost of steel, a lot of which is imported, is linked to strong activity in the commercial building sector, said Bob Hellenthal, executive director, Mid South Building Materials Dealers Association (MBMDA). In addition, steel is in demand for use in highway and bridge construction projects being funded by the federal stimulus program.
Steel prices have been high for about a year, while the prices of lumber has fallen in the past 12 month, causing hardship for landowners selling timber and sawmills. Hellenthal said lumber has been showing some signs of increasing in price lately.
“But, whether that will hold or not, we don’t know,” Hellenthal said.
A number of factors make it a good time to build right now for people who can get credit. In addition to low costs for wood products, there are a number of incentives such as a federal tax credit of up to $8,000 for first-time homebuyers or those who have not owned real estate in three years, and energy tax credits for green building supplies such as metal roofs, energy-efficient windows, insulation and solar and geothermal systems.
MBMDA currently has a field representative, Gayle Aguda, who is being trained to work with members and builders, advising them on green building materials, systems and credits from the IRS.
“Green building is an exciting program, and it is here to stay,” Hellenthal said. “It affects a lot of things.”
There has also been a decrease in the inventory of unsold homes. While that number is still higher than ideal, it has been steadily improving.
Doug Boykin, chief financial officer and a partner with Columbus Lumber Company, Brookhaven, said even with the price of lumber at historic lows, there just is not the home building activity out there that was seen earlier in the decade.
“We are seeing more activity in rural areas than urban areas because some of urban areas saw a lot of overbuilding during the housing boom,” Boykin said. “Rural areas have been steady throughout. This is the time to build, if you can build, because you will get a great deal not only on building material costs, but also contractor costs because they aren’t busy out there. We don’t see any turn around, frankly, until April of next year. It is going to be a slow climb from all we see and read and hear from our customers.”
The wood products industry is hurting. Boykin said it is not possible to buy logs cheap enough to make lumber profitable at the current low prices.
“Obviously, it is a supply and demand issue,” he said. “There is an oversupply for the demand. Us little guys think the big guys see a little blood in the water and want to keep it that way. The industry as a whole, not just in Mississippi, but throughout the South, has been affected by the price of lumber. We could live with the reduced demand if the price of lumber was at a profitable number.”
Columbus Lumber Company is unique in that it also has a treating plant at its facility. That has been very helpful as people are still building decks and fences.
“There is a lot of ‘do it yourself’ building,” Boykin said. “There just isn’t the new home construction there was, obviously, two or three years ago.”
A few years ago when the economy started softening, it was observed that the strong home building sector was propping up the economy. But overbuilding and the subprime mortgage crisis combined to a decline in the economy and high unemployment led to the collapse of home building markets, leading to record foreclosures and the greatest declines in housing prices seen since the Great Depression.
Boykin said that home building is a leading indicator for economic times, and more should be done to help the industry. Groups such as the National Lumber and Building Material Dealers Association and the National Association of Home Builders feel housing got short shrift in the economic stimulus bill.
“Unfortunately, some of the things we wanted to do weren’t in the bill,” Boykin said. “There is a $8,000 credit for new home buyers, while we wanted as much as $20,000 that could be used directly to purchase a house. That could have been used as a down payment to stimulate purchases to reduce inventory of homes. All over the U.S., people feel that the housing market and the building materials and construction market is the leading indicator. It is what is going to bring us out of the slump. Unfortunately, we have seen any of the TARP (Troubled Asset Relief Program) money that went into banking and automobile industry. It is just like the ‘cash for clunkers’ deal. We have already given the auto industry billions of dollars and now we are giving them more. And who pays for that?”
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