Building costs pushed up by soaring materials costs

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Construction material prices appear to be entering another period of double digit inflation, similar to what occurred during 2004 and 2008.

The Bureau of Labor Statistics price index jumped 1.3 percent during March and is rising at a 10 percent-plus pace for the first three months of 2010. The same materials that caused the two earlier price spurts – lumber, plywood, diesel, structural steel and steel pipe — are again responsible. Prices on each of those products increased 8 to 10 percent in the last three months.

Polyvinylchloride and other nonferrous pipe prices rose 5 percent while gypsum prices were steady but price increases of 20 percent or more have already been announced, according to Reed Construction Data.

So far the price surge has not included cement and concrete products and will not for many months because it is a domestic market, largely isolated from international impacts until US construction activity expands enough to absorb domestic capacity and require a significant amount of expensive imports.

Reasons for the upswing in building materials prices have varied over the years.

The 2004 price spike was caused by an abrupt worldwide economic recovery which made intense demands on materials for both manufacturing and construction and caught suppliers unprepared.

The 2008 price spike was caused by unexpectedly high worldwide economic growth, much of which turned out to be an overheated real estate bubble.

The 2010 price spike will be very similar to the 2004 experience, industry experts predict.

They credit demand from industrial and construction users in fast-growing countries like China and lag time required for suppliers to deliver adequate supplies, for today’s rising prices.