As lumber prices weaken, other construction costs jump
While lumber prices have shown recent declines, the cost of residential construction materials has risen by as much as 19% this year, according to the latest Bureau of Labor Statistics Producer Price Index (PPI).
According to the National Association of Home Builders (NAHB), 10 residential construction categories with the largest gains have seen price increases of at least 30% year-to-date. The categories include:
- Steel mill products
- Building paper and building board mill products
- Asphalt
- Plastic water pipe
- Fertilizer materials
- Laminated veneer lumber
- Thermoplastic resins and plastics materials
- Structural metal joists and concrete reinforcing bars
- Wood window and door frames
- Copper pipe and tube
Conversely, final demand goods have climbed just 7.2%, and final demand goods less food and energy is up 5.3% since January, the NAHB reports. The subset of services used in residential construction (excluding labor) has climbed 19.3%.
Overall, construction input prices declined 0.6% in August compared to the previous month, according to an Associated Builders and Contractors (ABC) analysis of Producer Price Index data. Nonresidential construction input prices fell 0.4% for the month.
Despite the monthly decline, construction input prices are still 20.8% higher relative to a year ago.
Nonresidential construction input prices expanded 21.6% during that period. The price of natural gas has experienced the largest year-over-year increase, rising 132.2%, followed by the aggregate price of steel mill products, which increased 123.1%. Iron and steel prices have nearly doubled over the past year, increasing 95.2%.
The prices of unprocessed energy materials and crude petroleum were also up, rising 79.2% and 74.8%, respectively.
“Though the headline number characterizing the direction of construction input prices appears favorable, many materials prices rose last month,” said ABC Chief Economist Anirban Basu “The overall decline in materials prices, which was small, was driven by two categories in which prices declined significantly: softwood lumber (-27%) and crude petroleum (-10%).”
But those were exceptions, Basu notes. Among the categories registering monthly price increases of 3% or more were prepared asphalt, steel mill products, natural gas, and fabricated structural metal products.
Here is the full Producer Price Index for August 2021.