May 15, 2013
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for April. Overall, producer prices declined for a second month based on continuing declines in energy prices, but the sharp price increases for the building materials framing lumber and OSB may be nearing an end.
The PPI for finished goods declined 0.7% in April from March (seasonally adjusted) driven by a 2.5% decline in energy prices. Core prices (excluding food and energy) continued their modest pace, rising 0.1% in April. Declining food prices also contributed to the decline in overall producer prices.
The monthly PPIs for framing lumber and OSB increased from March to April, 3.2% and 6.5% respectively, but weekly price data from Random Lengths indicate that turning points during April may be the beginning of a reversal of the steep increases that have accompanied the housing market recovery. If sustained these declines should appear in the June release of the May data.
Indexing both the PPI and the Random Lengths framing lumber price to January 1995 shows that they move together closely, reflecting the same price dynamics, with the weekly data from Random Lengths showing a larger amplitude in the changes. Based on monthly prices the PPI indicates a 67% increase from the 2009 trough to April; the weekly data show a trough to April increase of 124% in lumber prices.
Price increases for OSB are even more dramatic. According to the PPI data OSB prices have increased 151% since bottoming out in the housing bust; the weekly Random Lengths data show a 206% increase.
A break in prices would be a welcome relief for builders. With house prices less than 10% above their housing bust lows, the impact of these rising input costs has presented a significant challenge for builders during the recovery.
April 12, 2013
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for March. Overall producer price increases have been relatively modest but prices for some building materials have soared in the last year.
The PPI for finished goods decreased 0.6% in March from February (seasonally adjusted) based on declines in energy prices, and prices are up 1.1% from one year ago (unadjusted). In comparison, the PPIs for gypsum, softwood lumber and OSB are up 18%, 30% and 68%, respectively, since last March.
In the case of gypsum and softwood lumber this brings price levels back to 93% of their housing boom highs, OSB (the most volatile of the three) is back to 65%.
The housing recovery that has gained strength since late 2011 is now putting pressure on a home building infrastructure that downsized during the housing bust. The increase in prices reflects the friction as supply chains and distribution networks are rebuilt. Lumber and wood products producers have begun to add back idled capacity but warn the process takes time.
Sharp price declines for these products in the near term are unlikely, but materials price have been vulnerable to market forces in the past. Positive signs for the future include producers’ recognition of the financial incentives to expand output, particularly given how much housing market recovery is still to come. Also, buyers in supply chains have been unwilling to overstock at such high prices. There is an expectation of price declines, the question is timing. There is a lot of uncertainty in the marketplace.
March 14, 2013
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for February. Energy prices, rising 3.0% based largely on gasoline prices, pushed the overall index up 0.7%. Food prices declined 0.5% while the core price index (i.e., excluding food and energy) was stable, rising 0.2% since last month.
While overall producer prices have been relatively stable, the prices for certain building materials have risen rapidly as the housing recovery has gained momentum since the beginning of 2012. Overall producer prices are up less than 3% while softwood lumber, OSB and gypsum prices are 30%, 80% and 26% higher than at the start of 2012.
The rising prices of these building materials represent a significant challenge for home builders as they find themselves squeezed between rising input prices and a housing market where prices are only recently recovering from their steep declines.
November 16, 2012
The Bureau of Labor Statistics (BLS) has released the Producer Price Indexes (PPI) for October. Producer prices continued the recent pattern of following energy prices. The PPI for finished goods declined by 0.2% in October from September while the index for energy goods declined by 0.5%. The core index which excludes food and energy declined by 0.2%.
Turning to the inputs for home building, prices for gypsum declined slightly in October but are 13.8% higher than at the start of the year. Prices for softwood lumber have been volatile in recent months, declining in October but averaging roughly 10% above last year’s levels. Prices for OSB continued their climb and now stand 52.1% above levels at the beginning of the year. Reports of another round of increases in gypsum prices in 2013 as well as continued strength in OSB prices could pose challenges for builders in 2013.
November 16, 2012
In a recent article, NAHB asked who is most often responsible for choosing everything from wood products to electrical and plumbing fixtures, finishing materials, siding, windows and doors, and other items that go into a new home or home renovation. Then, the surveys went one step further and asked, regardless of who chooses these products, where are they generally purchased?
Perhaps not surprisingly, the results show that builders and remodelers themselves have the greatest influence on product selection. The main exceptions to this rule are products like appliances, flooring, lighting, countertops and cabinets, which are often chosen directly by the consumer, particularly in remodeling projects. Meanwhile, products chosen most often by subcontractors are limited to electrical and HVAC equipment and ducts.
October 16, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for September on Friday. The PPI for finished goods increased 1.1% from August on a seasonally adjusted basis, driven mainly by a 4.7% increase in prices for finished energy goods. Prices for finished food goods rose at a 0.2% annual rate while the core index (i.e., finished goods less food and energy) was unchanged. Swings in the energy index, led mainly by gasoline prices, have been the key factor moving producer prices since mid-2010 as growth in the core index has been relatively stable.
Among inputs for home building, PPIs for gypsum and wood products showed sustained increases since the beginning of the year. Prices for gypsum declined slightly in September but are still 14.6% higher than in December of last year. Prices for softwood lumber and OSB have increased 12.4% and 50.2%, respectively, over the same period. While these increases leave these materials prices below their housing boom peaks, they are elevated relative to most of the post-boom experience.
In the case of OSB, there has been some indication in the trade press that the recent price increases are related to capacity constraints. Productive capacity was reduced in the wake of the housing bust, expanded in mid-2010 as the homebuyer tax credit stimulated demand and prices spiked, but reduced again when that demand faded with the expiration of the credit. Reports are that as producers judge the improvements seen in housing demand this year sustainable, capacity will be increased which should lead to easing in prices.
May 11, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for April today. Overall, the PPI for finished goods declined 0.2 percent from March on a seasonally adjusted basis, as a 1.4 percent decline in energy prices outpaced 0.2 percent gains in both food goods and the core index (i.e., finished goods less food and energy).
In a surprise development, gypsum prices declined 1.9 percent from March to April, after strong gains through the beginning of the year that had brought prices to 13.8 percent above levels at the end of last year. Today’s decline brings the year to date gain in gypsum prices back down to 11.6 percent.
PPIs for other home building inputs showed softwood lumber prices rose 1.4 percent in April while concrete prices declined 0.2 percent. The aggregate index for residential construction rose 0.2 percent for the month and the pace of year over year increases slowed to 2.9 percent from recent highs between 6 and 7 percent in mid-2011.
April 16, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for March last week. The PPI for finished goods was unchanged from February on a seasonally adjusted basis, as a 1.0 percent decline in energy prices offset a 0.2 percent increase in food goods and a 0.3 percent increase in the core index (i.e., finished goods less food and energy).
With respect to building materials, gypsum prices continue to be the main driver for residential construction cost increases in 2012, rising 2.2 percent in March, after increases of 5.9 percent and 5.1 percent in January and February, raising gypsum prices 17.7 percent above the most recent low in February of 2011.
Lumber prices rose 0.9 percent in March while cement prices declined 0.4 percent, pushing the aggregate index for residential construction up 1.1 percent for the month. This brings residential construction costs to 13.0 percent above the mid-2009 lows.
January 18, 2012
The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for December today. The index for finished goods declined 0.1 percent in December from November after oscillating in a narrow range since May. The leveling off paralleled the flattening of energy prices after a sharp run-up earlier in the year.
The PPI for material and supply inputs to residential construction has followed the same basic pattern as the PPI for finished goods, with sharp increases early in the year leveling off by year end.
The PPIs for selected residential construction inputs confirms that the weak housing market has kept price pressure for non-energy related materials at bay with levels flat over the last several years.
December 27, 2011
With the end of 2011 approaching, the contributors of NAHB’s Eye on Housing thought it would be useful to take a look at the updates that attracted the most readers over the last year.
In November, we examined a possible 2012 price increase for gypsum. Several NAHB members have expressed concern about gypsum producers’ stated plans for significant price increases in 2012, some as high as 35%. An increase of this magnitude will raise gypsum prices to a level almost 20% above the long-term trend.