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Builders say cost of materials driving up price of new homes

July 06, 2004|by BRIAN SHAPPELL

shappell@herald-mail.com

TRI-STATE - As builders continue to report soaring prices on materials needed for the construction of new homes, local companies and home buyers are absorbing portions of the additional costs, some builders say.

The increases are pricing many first-time buyers out of the market, builders say. But one national supply company says the higher prices are the result of the continuing high demand for new homes.

From lumber to products made from steel to petroleum-based materials, businesses are reporting continuing, often steep increases for construction materials in 2004.

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David Hartley, executive officer of the Eastern Panhandle Homebuilders Association, in Martinsburg, W.Va., said builders in the Tri-State area and beyond are incurring costs that far exceed projections of a few months ago.

Hartley said the increased cost of materials is cutting the profits of many companies, especially smaller ones.

Hartley said it is the home buyers who are most affected.

"The bottom line price of a house is affected," Hartley said. "It's like with ice cream, if the cone and the ice cream are more expensive, you're paying more."

Hartley said he believes price instability will force builders to take fewer contracts, thus decreasing the number of new homes that are available.

"Many people want to buy sooner (rather) than later," he said. "They may have to wait longer than they want and pay substantial rate increases."

Jerome Martin, of Smithsburg, co-owner of Mar-Cal Construction Company Inc., said he noticed the most dramatic price increases in March, although they have been apparent throughout the year.

For example, a sheet of Advantix flooring that cost between $18 and $19 at the beginning of March cost $38 by the end of that month, Martin said.

Rebar, which is used in the footers of new homes, was priced at $2.29 for a 20-foot stick earlier in 2004, Martin said. He said the cost now is close to $9.

Martin said the price of many steel-based products, including nails, is up 70 percent to 80 percent from earlier in 2004.

He said such changes are increasing the cost of building homes by thousands of dollars.

Martin said the additional costs for products necessary for construction of a 7,000-square-foot home is between $10,000 and $20,000.

"If you're using 5,000 linear feet of rebar and paying $9 instead of $2, you're in trouble. That's a big chunk of change," he said.

Martin said if prices continue to rise, his small general contracting business may in the near future have to lean more toward doing remodeling and "handyman-type stuff" than toward new-home construction.

Nick Vitucci, owner Nicholas Construction Inc., of Hagerstown, said many companies are losing a portion of profits when bound to a contract, although some have been re-negotiating deals.

"It's hard going back to people and saying, 'I have to charge you extra,'" Vitucci said. "I can't even bid at a solid price anymore because every week it goes up again."

Several Tri-State area builders said they believe the trade dispute between American and Canadian lumber companies, the need for building materials in post-war Iraq and higher gas prices are to blame for the increases.

But 84 Lumber Director of Commodity Purchasing Mitch Wagner said the increases are due to market-driven supply and demand.

Wagner said issues such as the need for materials in Iraq were more applicable to the industry in 2003, not this year.

"I believe prices are high just because we're in a housing boom right now," Wagner said. "The housing-starts capacity is not designed for this amount of business."

Wagner declined to comment further on what he called "industrywide" price increases or to release price comparisons from the beginning of the year to now.

Doug Gayman, owner of Gayman Construction Company Inc., based in Chambersburg, Pa., said the increases, while troubling, are something builders "just have to deal with."

Gayman said the people hurt the most in the current climate will be first-time and low-income buyers.

"Some people have had to back out of their projects," Gayman said. "When you're first starting out, and you're on a limited income, it's tough to buy to begin with. And with prices going up, they're really not prepared for it."

Gayman said his company is one of many that continues to have a lengthy backlog of work to get to in 2004.

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