Article source: ConstructConnect

In the Spring and Summer of this year, a huge gap opened between construction bid prices that were staying low on a year-over-year basis and material input costs, also y/y, that were soaring into the stratosphere.

Graph 1 shows the comparisons. The top curve records the average gain for two PPI series measuring construction material cost hikes. The bottom curve captures bid prices. The PPI code numbers are WPUIP231000, WPUSI012011 and WPUFD43.

Over the past several months, there’s been some downward adjustment in the materials cost structure. The top curve in Graph 1 descended from its peak, but then it did jog back upwards slightly in October. The bottom curve for bid prices has been increasing, with an especially big jump in the latest month, to +12.3% y/y.

Forestry products is where the first big and outrageous escalation in costs began earlier this year, with softwood lumber prices in May being +161% year over year.

There’s been a sigh of relief at seeing the cost of softwood lumber turn -19.5% y/y in October and -25.3% during the past three months.

This doesn’t mean there will be a corresponding financial break for purchasers of new homes. U.S. sawmills supply only about 70% of the product needed for American homebuilding. Imports from Canada make up almost all the rest and the average tariff on shipments from north of the border has just been doubled from a rounded 9% to a rounded 18%.

Also, not all wood products have seen large price drops. Hardwood lumber and millwork, appearing as line items in Table 2 at the end of this article, are +45.6% y/y and +14.4% y/y respectively.

Also, even with their price retreats, softwood lumber, plywood and particle board/oriented strandboard are currently at levels higher than at any other time this century