Even though hard construction costs have fallen during the housing recession, they now account for nearly three-fifths of the price of the home, according to the latest NAHB survey. That's a big shift from nine years ago, when construction costs accounted for just half the price of a new home.
With the exception of construction materials, every cost component of building a house — the finished lot, financing, marketing, sales commissions, overhead and even profits — has gone down since 2002, the NAHB says.
Nine years ago, builders were pocketing roughly 12 percent of the sales price on average as pure profit. In 2009, the last year for which the NAHB has figures, the typical profit on a new house was 8.9 percent. And given the state of the market last year, it's probably safe to say profits are still falling.
Not all builders are feeling compelled to mark up their wares. In Chicago, where just over 3,000 new homes were built and sold last year, there is little demand. Consequently, there is little incentive to raise prices, says John Wozniak of J. Lawrence Homes in Wheaton.
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NAHB economist Markstein agrees. "All the commodities are up, but lumber is probably up the most," he reports.
After falling from a run-up last spring, the cost of the softwood lumber used for framing rose sharply in November and December. Hardwood lumber used in flooring and cabinets is up, too, as is millwork, plywood and oriented strand board, a plywood substitute.
Ever volatile, copper peaked in the spring of 2008. But the raw material, used in pipes, gutters, roofing and appliances, was trading at an all-time high in December. Steel-mill products were up 12.5 percent year-over-year in December, crude-oil prices were up 25 percent, and the No. 2 diesel fuel that construction workers use to run their machines rose 27.6 percent.
The list goes on and on. About the only key construction materials not currently rising are cement and concrete products, such as brick and block.
Zelman's December survey reflected the greatest sequential increase in price rises since May in 10 of 11 categories. "We suspect that the responses are influenced by manufacturers' price announcements," the firm says. "But either way, we believe that material inflation is a notable headwind for builders in 2011."
chicagotribune.com
What we need is a Homies' Purchasing Managers Index. As long as Prices Paid increases, it goes up... |
