A stack of building lumber.

Contractors Should Watch Rising Material Costs

Construction material costs rose 0.7% from October to November, marking a 5.6% year-over-year increase and representing the largest hike since November 2011, according to the Associated Builders and Contractors (ABC).

Crude petroleum, unprocessed energy materials, natural gas and prepared asphalt, tar roofing and siding saw the biggest month-over-month price increases. Crude petroleum, softwood lumber, unprocessed energy materials and iron and steel had the biggest yearly increases. Prices for all categories increased both on a month-to-month and year-over-year basis, with the exception of iron and steel and steel mill products, which both dropped 1.4%.

The global construction industry has taken off, according to ABC Chief Economist Anirban Basu. That expansion along with the rising material prices should continue into next year.

Softwood lumber is one input price that is sure to rise in the coming months as the U.S. and Canada wade through a legal battle over the material. Earlier this month, the U.S. International Trade Commission affirmed final tariffs on Canadian softwood lumber imports, ruling that those imports had hurt the U.S. lumber industry.

Why Are Material Costs Increasing?

In November, Canadian officials had initiated a North American Free Trade Agreement (NAFTA) trade challenge against duties on $5.66 billion worth of U.S. lumber imports before formally opening a case at the World Trade Organization (WTO) over the material. Canada said it will seek a review of the action under NAFTA’s dispute process.

The National Association of Home Builders (NAHB) has pushed back against the U.S.-imposed tariffs, arguing that it will increase homebuilding costs and hurt the new housing market costs, and hurt the new housing market, which is already facing supply shortages. According to the NAHB, Canada supplies 95% of wood imports, which made up 33% of U.S. lumber supplies.

Despite the threat of increased material costs, builder confidence increased by two points to a mark of 70 on the November NAHB/Wells Fargo Housing Market Index, its highest level since March and second highest level since July 2005. Job growth, a rise in homeownership rates and a continuing shortage of available homes all drove the index higher, according to the NAHB.

American Construction is an Arizona based General Contractor specializing in Commercial Construction, Full Home Renovations and New Home Builds. Learn more about American Construction.

%d bloggers like this: