TBO.com - TBO is Tampa Bay Online

Oil Spike Pins In Builders

ADVERTISEMENT

The Associated Press

Published: June 14, 2008

LOS ANGELES - As if home builders didn't have enough to worry about with plunging home prices and rising foreclosures, the surge in oil prices is driving up the cost of key construction materials and further eroding homebuyers' confidence.

Prices have gone up for steel, aluminum, copper, concrete, brick, asphalt and plumbing fixtures, among other materials, and home builders are feeling pressure from suppliers to foot the bill. In sum, the wholesale cost of building materials for new home construction rose 3.4 percent overall in April from a year earlier, according to the Labor Department.

"Any material that is petroleum-based or transportation-intensive will have pricing pressure during periods of rising oil prices," said Tony Callahan, senior vice president of Purchasing, Planning & Design for Atlanta-based Beazer Homes USA Inc. "Manufacturers are trying to push cost increases through for materials like asphalt roof shingles, carpet, insulation."

The price increases represent another hurdle for home builders already reeling from 40 percent buyer cancellation rates and billions of dollars in write-downs on undeveloped land. Some industry analysts say the housing slump isn't likely to improve before 2010.

This week, two rating agencies slashed the debt ratings for several builders. The debt of companies including Ryland and Centex has been branded as "junk." So on top of higher material costs, the builders will have to pay higher interest rates if they need to borrow more money.

Many builders have moved to slash costs by switching to less-expensive materials for flooring and kitchen countertops, for example. They also have shifted to putting up smaller houses that cost less to build and sell for less.

Callahan said Beazer is favoring suppliers who work to cut costs by reducing the number of trips to a job site, for example, or reducing how much of the material used in a project is wasted.

During a call with Wall Street analysts last week, Toll Brothers Inc. Chief Executive Officer Robert Toll said the Horsham, Pa.-based luxury builder has seen prices rise for asphalt-based materials, concrete, steel and other commodities.

"Unfortunately, I think we'll be caught in a squeeze and those costs will go up a little bit, if not more than a little bit," Toll said.

Oil-related materials such as asphalt, used in roofing, siding, and for paving driveways, have seen the biggest percentage jump in costs as oil prices have climbed.

Asphalt was up almost 26 percent in April from a year earlier. At the same time, diesel fuel, used in trucks and heavy machinery on construction sites, saw the biggest price spike in April - a jump of about 66 percent.

Some products builders need have fallen in price, including softwood lumber and gypsum, which is used to make drywall. Gypsum's price was down more than 16 percent in April, and softwood declined about 12 percent.

During the boom years, demand drove up prices for lumber, drywall, cement and other building materials. Now that home construction in many areas is near a standstill, suppliers have been forced to give back those gains.

"The major public home builders have been trying to squeeze prices out of their suppliers and I think have been successful in doing that over the past 24 months or so," said Robert Rulla, home building and building materials analyst for Fitch Ratings.

If oil prices keep rising, however, home builders may not be able to avoid higher costs, and if they tack those costs onto the price of their homes, they risk losing customers.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT