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Thread: Material Prices

  1. #1

    Default Material Prices

    I hope I'm not posting this in the wrong forum.
    Has anyone got an idea of how bad material prices are going to rise due to hurricane Katrina? I feel bad for those in the affected areas and hate to ask this question but this tragedy is certainly going to affect our industry. We are in North Carolina and 7/16 O.S.B. has gone up $6.00 in four days and the lumber yards are putting limits on how much one builder can buy in a day. I am estimating a new house right now and really don't want to get burned by an outrageous hike in material prices.
    Coots

  2. #2
    Join Date
    Feb 2005
    Location
    Racine, WI
    Posts
    2,127

    Default Re: Material Prices

    Just make sure you tell your customer what the market conditions are now and that your price may (will) change depending on when you start purchasing material.
    Your guy lost. Get over it.

  3. #3

    Default Re: Material Prices

    Does anyone know of a good site to see the trends in material costs so I can have something to show my clients?

  4. #4
    Join Date
    Feb 2005
    Location
    Racine, WI
    Posts
    2,127

    Default Re: Material Prices

    Did you try a Google search? I might have a report in my email, but I need to find out if it is able to be given out. We get an insiders scope on market conditions.
    Your guy lost. Get over it.

  5. #5
    Join Date
    Jun 2004
    Posts
    146

    Default Here's a least one point of view

    WASHINGTON, Sept. 2, 2005 - Economists for the National Association of Home Builders (NAHB) today released the following report on how the destruction spawned by Hurricane Katrina could affect the price and supply of building materials.


    IMPACT OF HURRICANE KATRINA ON BUILDING MATERIALS AND PRICES

    The full extent of the impact of Hurricane Katrina on the overall economy and on the housing market is still unclear, and the immediate focus is properly on human life and health, but the number of homes destroyed by this catastrophe is almost certain to dwarf the losses from any previous U.S. natural disaster.�* Past experience, together with the visible devastation, provides some basis for projecting the effects on construction activity, the supply and cost of building materials and construction labor, and other implications for the housing market.

    The number of housing units destroyed (made uninhabitable and beyond economically-justified repair) by Hurricane Andrew in 1992 was estimated at over 28,000.�* The combined effect of Hurricanes Jeanne, Ivan, Frances, and Charley in 2004 was almost as large, with nearly 27,500 housing units destroyed, according to estimates compiled by the American Red Cross.�* In those cases, most of the destruction was caused by winds or the immediate force of the storm surge.�* The number of homes with major but reparable damage was more than twice the number destroyed.�* The 1906 San Francisco earthquake/fire reportedly destroyed 28,000 "buildings."

    Katrina also caused widespread immediate damage in Louisiana, Mississippi, and Alabama, but the flooding in New Orleans, Mobile, and elsewhere is likely to translate into much larger numbers of homes destroyed.�* Although the floods generally did not tear off roofs or walls or cause structures to collapse, many homes will be permanently uninhabitable.�* The flood waters carried contaminants that cannot easily be removed, and even if the water were clean, prolonged submersion would cause structures to be damaged beyond repair.�* This is likely to be the fate of a large share of the more than 200,000 homes in the city of New Orleans.

    Of necessity, rebuilding will have to wait.�* The immediate need will be to clean up and repair damage to structures that are still viable.�* The repair process will absorb much of the construction labor near the affected area and several key materials that would otherwise have been used to build new homes.�* The materials that will be most affected include roofing and wood panels (plywood and OSB).�* Demand for other materials, such as concrete, is likely to decline initially, as planned projects are cancelled or delayed during the initial recovery period.

    The storm will have impacts on the supply of materials as well as demand.�* The areas affected by the storm have a significant number of wood product facilities that may have been damaged or destroyed.�* On the other hand, trees that have been blown down will need to be harvested on an accelerated basis, perhaps helping to lower wood product prices in the medium term.

    Additionally, imports of building materials will be disrupted by the damage to port facilities.�* New Orleans was the top destination for imports of cement and a number of other building materials into the U.S. in 2004.�* Cement imports, in particular, involve the use of specialized terminal facilities.�* The New Orleans and Mobile customs districts reported about 12 percent of national cement imports in 2004.

    Congestion caused by diversion of shipping to other ports will also probably disrupt some supplies of materials, as will land transportation problems caused by damage to roads, rail, and reload centers.

    From July 1992 to September 1992, largely as a consequence of Hurricane Andrew, the average price for plywood increased from about $222 per 1,000 square feet to $321, and the price of Southern pine framing lumber rose from $264 per 1,000 board feet to $308.�* The hurricanes in 2004 did not trigger a similar increase, and prices actually fell during the relevant period, after soaring during the preceding year.�* The combination of greater (partly speculative) demand and disrupted supply produced a spike in lumber and panel prices in the final days of August 2005.�* With production already running at full capacity for wood panels, further increases for those products, as well as for roofing, are likely.

    Although the loss of tens of thousands of homes implies increased demand for, and construction of, new homes, past experience has shown that there is no massive surge in home building in affected areas.�* Replacing units destroyed by the storm will not begin for many months and will take place slowly, over a number of years.�*

    In Dade County (now called Miami-Dade), the number of residential permits was 9,026 or 7.8 percent of the state total in 1993, the year following Hurricane Andrew.�* That share of the state was slightly lower than the county's 7.9 percent share in 1991.�* By 1995, there was an increase to 14,718 or 12.0 percent of the state, but that number still wasn't much greater than what might have been expected if there hadn't been a hurricane.

    The experience in other areas, such as Alameda County, Calif. following the 1991 fires and Charleston, S.C., after Hurricane Hugo in 1989, was similar.�* Homes were rebuilt or replaced very slowly.


    �*

  6. #6
    Join Date
    Aug 2004
    Location
    Senatobia, MS
    Posts
    1,897

    Default Re: Material Prices

    Cooterbuilt,

    If you have a good relationship with your suppliers they will usually provide the forecast information to you and warn you of expected increases so you can prebuy when neccessary. The increases hurt them too and they want to maximize their sales during this crisis. It serves both your interests for them to keep you well informed. Ideally, the yards would like for costs to be low to stimulate growth and profits to be high to finance expansion. The current global situation does not benefit the industry in any way except possibly by creating a demand for higher wage and higher skilled employees. When OSB was $4.00 a sheet any hack could chop it up and turn a profit. At $20.00 per sheet the cuts need to planned to optimize the materials.

  7. #7
    Join Date
    Jun 2004
    Location
    Boynton Beach, Florida
    Posts
    90

    Default Re: Material Prices

    Random Lenghts is a publication that comes out weekly ans is
    widely accepted in the industry to track lumber prices and trends.

    www.randomlengths.com

  8. #8
    Join Date
    Jul 2005
    Location
    Niagara Area, Ontario
    Posts
    152

    Default Re: Material Prices

    Coots,

    Taking off from Bill's suggestion, another strategy is to let clients know that, specifically these days (even before the hurricanes), materials can be really dynamic. Quoting a build or remodel today can mean significantly different costs when it comes time to order.

    Make sure you let them know that some builders and remodelers compensate for this by: a) buying cheaper material than originally quoted; or b) finding corners to cut during the project to make up the difference.

    But, you're different. Not only don't you play those games, you let the client know at regular intervals how material prices have changed and, if significant, you can decide together how to deal with it...so they still have a choice in how their project continues.

    Finally, if you really want to separate yourself, you can offer to quote the job at a price based on current trends (much like the information you're trying to gather). Although this means your price may be higher than other contractors (who engage in the 'games' above), you'll show complete transparency to the client (i.e., show them exactly what it cost) and you'll be happy to share any difference from over-estimating.

    Pulling this off may take some confidence in your ability to communicate with the client but, if they see you're being up front with the real situation...and trying to protect them from some of the games out there, they'll recognize you're a straight-shooter who wants to ensure they're getting the quality they signed-on for, regardless of external factors.
    Brett Martinson
    Balance profits and quality at:
    www.SuccessfulHomeBuilders.com/profits

  9. #9
    Join Date
    Oct 2005
    Location
    Bridgewater, Mass
    Posts
    133

    Default Re: Material Prices

    Providing an allowance for materials will help, you can add a fixed percentage in anticipation, and only charge the customer if price increases are realized.

    I include a line on my proposal that reflect an approximate 10%-20% (depending on the nature of the project) of the total quote for miscellaneous, this is to cover cost of modest upgrades, small change orders, and explain that this will also protect us against material price increases, and that the unused portion is refunded to the customer.

    The only trouble I've had with this approach is that we have become "lax" on our change order procedures at times.

    Is there any "Cost of Building Index" available to contractors, whereby we could tie our proposal to an index based on a certain day, and the proposal would be adjusted based on the index at start of job? This may also encourage a quicker decision.

    QUESTION-
    How many contractors are assessing a "Fuel Surcharge" and of the ones charging this, how many include a provision in their contracts for this charge?

  10. #10
    Join Date
    Oct 2005
    Location
    savannah
    Posts
    44

    Default Re: Material Prices

    I am sales rep for a building materials/lumberyard....I have joined this forum to get a better feel for the other side of the biz...as for lumber prices...as you all know lumber is a commodity just like oil, sugar natural gas etc....prices change literally daily...my firm provides all our larger builders (25,000.00 per month or more ) with weekly price sheets 2x material, sheet goods etc ..every Monday..If I do a take-off and you use me I will lock in 30-day pricing with my buyer...if you are 60-90 days out I have had customers pre-pay for their frame packs and ship later..these are just some ideas you might run by your suppliers ..because prices are expected to climb for next month or so...

  11. #11
    Join Date
    Jul 2005
    Location
    Niagara Area, Ontario
    Posts
    152

    Default Re: Material Prices

    You're right too. The key is the end result, which is running a business profitable while providing value to the client.

    As "woodrep" touches on, that includes suppliers too. It's not a case of "passing the buck along" but the cost of doing business at any one point and, part of that, is changing material prices.

    This means making things as efficient as possible so you can give your clients the best value for the dollar (not necessarily the 'best' (read: cheapest) price).

    Definitely a miscellaneous line-item (and a bonus for the client if it's not chewed up) is one way to tackle it!
    Brett Martinson
    Balance profits and quality at:
    www.SuccessfulHomeBuilders.com/profits

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