Published: 02.26.200
By Becky Pallack
ARIZONA DAILY STAR
Building booms thousands of miles away could push up the price of new homes
in Tucson.
China and Iraq are using up much of the world's construction materials, causing
prices here and across the world to skyrocket - in Tucson, by as much as 30
percent for steel products and 20 percent for lumber in the past six weeks.
As China shifts from an agricultural economy to an industrial power, it is using
a third of the world's steel supply. China is keeping all of the steel it produces
and importing some from the United States, leaving less available here.
And the U.S. military bought up roughly 15 percent of the nation's lumber supply
for temporary troop housing and civilian rebuilding projects in Iraq. Domestic
problems also have played a part, including fires that shut down lumber mills
and slowed the production of a steel byproduct.
All this comes at a time when demand for new homes remains strong, fueled nationally
by still-low interest rates and locally by continued growth. The combined factors
could inflate local new home prices, as builders pass along the higher costs
to consumers.
"The outlook is pretty bad - it's not only pricing but availability,"
said Brian Robbins, manager of ATKO Building Materials in Tucson. "Ultimately,
the result is higher home prices."
One way to drive prices back down would be to produce more steel to meet demand.
China wants to build steel plants in South America, but it's unlikely even that
would meet the nation's enormous needs: China's demand is expected to grow even
larger as it builds more than 17,000 miles of railroad in the next 15 years.
High demand in China also is pushing up the price of copper, which is used for
pipes and wires. Copper prices have surged almost 70 percent in the past year,
but a worldwide overstock in recent years is enough to meet demand - at least
for now.
China's increased demand is a key to the price increases, but not the only one.
Other factors are at work:
° Suppliers have limited orders to prevent a run on the bank. Builders can't
buy more than they bought last year.
° Tariffs on steel that had been in place for 20 months to aid domestic
steel companies were dropped in December - a move that increased price competition.
° Energy prices are high, and it takes a lot of energy to power a steel
or lumber mill.
° Supplies of coke, a byproduct of coal used to make steel, are low because
of a fire at a major West Virginia plant early last year.
° Logging companies still are recovering from the summer's devastating wildfires.
Add it all up, and the result is higher prices.
In January, the average price of a new house in the Tucson metro area was nearly
$205,000 - up $25,000 from a year ago.
That increase is due mostly to strong demand, higher impact fees and rising
land prices, local housing analyst John Strobeck said. Higher prices for building
materials being purchased now should enter the mix by next month, Strobeck said,
pushing prices even higher.
Building materials account for about 40 percent of a home's price. For a $200,000
house, a 20 percent rise in the cost of materials could boost the asking price
by $16,000 - or more.
Once a builder factors in taxes, fees and profit, an extra $2,000 in building
materials could add $3,000 to a home's final price, said David Winsor, vice
president of purchasing for DR Horton Homes' Tucson division.
Local price hikes significant
The price increases builders are seeing are significant. DR Horton, for example,
has seen the steel parts on a framing package for a house increase from $600
to $780 this year, Winsor said.
"You can't absorb big hits like that," said David Ollanik, owner of
Ollanik Construction. "Those have to be passed on."
The volatile prices surprise some clients, but Ollanik said he shares industry
reports with them and explains why contractors can't lock in prices anymore.
His suppliers can't guarantee prices, either.
It's a "horror story" to David Hauert, general manager of Grant Road
Lumber Co.
The price of a carload of oriented strand board, a substitute for plywood commonly
used on roofs and walls, has jumped $50,000 in one year to $82,000, Hauert said.
A carload of board would cover about 32 roofs.
A ton of scrap steel wholesales at $161 now, compared with $101 a year ago,
according to commodity reports. A typical car uses a ton of steel.
"Where it's going from here I don't know," Hauert said.
Prices change often
For local suppliers and buyers, the price changes are dizzying: Prices that
used to stay steady for eight months now change every couple of weeks, said
Brandon Moss, vice president of Landmark Metal Builders in Tucson.
Landmark, which builds airport hangars and commercial stores such as Family
Dollar, has lost a couple of sales to price increases, Moss said. Builders like
Landmark have to absorb the cost increases on bids made a year ago, but new
bids can be adjusted.
"Steel has typically always been at a steady price," Moss said. "Our
steel suppliers are only guaranteeing prices for about 14 days."
The price of steel is up 30 percent since the beginning of the year and Moss
expects increases in the long term.
Custom Barns saw prices on its steel materials jump 15 percent to 30 percent
in the past week, wood prices double in four months and zinc used to coat metals
soar 40 percent in a month, owner Berry Burden said. That drove up the price
of a corral panel from $90 in December to $115 today.
"If you don't mark up your product 25 percent to 30 percent, that would
be like giving the barn away for cost," Burden said.
It takes up to six weeks to get ordered materials now, compared with a one-week
turnaround six months ago, which means added waiting time to complete a building,
said Robbins, ATKO manager.
Subcontractors squeezed
Subcontractors have it particularly rough. They bid with guaranteed prices and
then get caught between a builder and a supplier when prices go up.
Builders such as DR Horton can negotiate with subcontractors to find the lowest
price. If three companies can absorb the price increases and one cannot, the
builder might let that subcontractor go, said Winsor, DR Horton vice president.
"We'll never recapture what we lost this year because of price increases,"
said Wade Bunting, president of local subcontractor Tucson Carpentry.
To survive, Bunting said, he'll have to find the perfect balance between absorbing
the extra cost and passing it on to his customers. If his shelf price is too
high, he said, he'll lose business; if it's too low, he won't be able to turn
a profit.
"We'll keep our fingers on the calculator and move with the market,"
he said.
° Contact reporter Becky Pallack at 573-4237 or bpallack@azstarnet.com.
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