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Tri Pointe Homes CEO Doug Bauer comments on declining new home sales across the country.
Soaring aluminum prices are the latest worry for a construction industry that grapples with higher material and labor costs as the US economy emerges from the pandemic
The three-month offer price of aluminum traded on the London Metal Exchange has jumped 47% this year to reach $ 2,907 per tonne. Prices have risen 73% from their pre-pandemic levels.
“Aluminum is an integral part of home construction and is used for everything from siding and gutters to insulation, nails and HVAC equipment,” said Jerry Howard, CEO of the National Association of Home Builders. Aluminum is also used in roofing, fencing and many other products.
Source: London Metal Exchange
The higher prices for aluminum have “translated into higher material costs for builders, as the price of aluminum building materials has increased by 15-25% over this period,” he said. he adds.
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The higher costs of aluminum aren’t the only headache for home builders.
Lumber prices earlier this year had climbed 316% since the start of 2020, adding $ 36,000 to the cost of building a new midsize home.
Other essential materials like iron, copper, steel and natural gas have also seen their prices skyrocket.
But it’s not just material costs that are on the rise.
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Builders and contractors also face higher transportation and labor costs. In addition, there are not enough roofers, glaziers, plumbers, electricians and other types of workers to meet the needs of the construction industry.
“It is all going in the same direction, causing project prices to rise,” said Anirban Basu, chief economist at Associated Builders and Contractors. “Some project leaders say: ‘no more for me, I’m done. I’m not going to embark on this project for the moment.'”
An Associated Builders and Contractors report released on Tuesday said its construction order book indicator fell to 7.7 months in August, down 0.8 months from July. The reading was 0.3 months below its level a year ago.
The drop in confidence reflects a drop in homebuilder sentiment that was reported last month. The National Association of Homebuilders / Wells Fargo housing market index fell 5 points in August to 75, the lowest since July 2020.
Still, ABC’s Construction Confidence Index showed sales figures, profit margins and staffing levels all remained above 50, indicating expectations for growth over the next six months.
“The cure for high prices is high prices,” Basu said.
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“These high prices for aluminum, copper, steel and other production inputs encourage companies to increase supply in the short term,” he added. “So it should happen that at some point in 2022, we see some relief for the construction industry and other segments of the goods-producing economy.“
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