Soft Prices, Except for Building Materials

The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for January. Energy prices continued their recent decline, the index for finished goods was pushed up modestly by an increase in the price of food goods, while core prices (i.e., excluding food and energy) rose by 0.2%, the average over the last year.

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But the prices for certain building materials have moved up sharply. Gypsum prices rose 12% in January from December, mirroring a steep increase at the beginning of 2012, and are now 27% above year ago levels.

The pattern of price increases for wood products has more closely reflected improvements in the housing market. Prices for softwood lumber rose 7% in January while OSB prices rose 9%. Lumber prices are up 25% from levels last year, but OSB prices have outpaced the housing market recovery, rising 77% since last year.

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Producers of gypsum and OSB have blamed the recent price increases on reduced productive capacity (mothballing plant and equipment) following the long drought in housing. Some OSB producers have announced re-opening mills increasing capacity in late 2012 or plans for expansion in early 2013 based on the visible improvement in the housing sector. This should provide some relief in OSB pricing. In contrast, gypsum producers have announced another round of price increases for 2013.

NAHB research shows that drywall (gypsum) and lumber costs combined approach 20% of the cost of construction for a single family house (CostBreakdown). The steep increases in these building materials can have a significant impact on home builders’ cost of doing business as well as the cost of a new home to home buyers.


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