Be prepared for an increase in construction materials costs in the first quarter of 2010. At least that’s what the most recent producer price index (PPI) seems to indicate. The federal data from November shows sharp increases in key materials, including copper and brass mill shapes, steel mill products, and insulation materials.
|One-Month Change (Oct. '09 to Nov. '09)||Three-Month Change (Aug. '09 to Nov. '09)|
|+ 6.3%||+ 6.4%|
|Copper/brass mill shapes||+ 4.6%||+ 11.3%|
|Steel mill products||- 1.6%||+ 4.1%|
|Insulation materials||+ 0.3%||+ 0.6%|
|Lumber and plywood||+ 1.1%||- 0.1%|
“Public agencies and private owners contemplating construction projects should treat the PPI figures as a warning shot because prices for many materials have stopped falling and are poised for increases,” says Ken Simonson, chief economist of Arlington, Va.-based Associated General Contractors of America. “Construction materials such as petroleum-based products and copper and steel are all vulnerable to price hikes. Copper, for instance, has shot up and is now trading at almost triple the rate of a year ago.”
The November PPI for inputs to construction industries—a weighted average of all materials used by contractors—had fallen 2.3 percent over the past 12 months but was flat over the past three months and rose 0.6 percent from October to November alone.
Simonson’s advice for developers? It’s a good time to invest in upgrading existing properties. “You can [still] get inexpensive materials and abundant labor, and you need to make your place attractive in order to hold on or bring in new occupants.”
If developers are lucky, these inexpensive materials might be available longer than the PPI indicates. “I expect that, in aggregate, material costs may increase a few percentage points in 2010, but this will continue to be offset by reduced labor cost as unemployment in the construction industry remains north of 20 percent,” says Mike Schlegel, president of Greenbelt, Md.-based Bozzuto Construction Co.