Updated August 28 at 1:28pm

Soaring costs hampering U.S. housing rebound

By Rhonda Miller
PBN Staff Writer

Even as U.S. housing rebounds from its worst downturn since the 1930s, production bottlenecks are pushing up building-materials costs, land prices are rising and skilled labor ready to begin work is hard to find.

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HOUSING

Soaring costs hampering U.S. housing rebound

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Even as U.S. housing rebounds from its worst downturn since the 1930s, production bottlenecks are pushing up building-materials costs, land prices are rising and skilled labor ready to begin work is hard to find.

Suppliers of glass, drywall and wood products, who reduced output during the slump, are testing the vigor of the rebound by boosting prices before committing to restore capacity. Builders, including Lennar Corp., Toll Brothers Inc. and KB Home, are asking homebuyers for more money as a result or are delaying sales, posing a temporary hurdle for the industry that has become one of the pillars of the economic expansion.

Building-material manufacturers “are raising prices dramatically, and once they’re convinced that these prices are going to stick, they’ll start reinvesting in those plants,” helping ease supply constraints, said John Burns, chairman of Irvine, Calif.-based John Burns Real Estate Consulting, which provides research to developers, construction-product manufacturers and investors. “Those can take a year to get up and running.”

In a sign demand remains strong, a report last week showed sales of new houses advanced in March, capping the best quarter for the industry since 2008. Purchases of new single-family properties climbed 1.5 percent to a 417,000 annual pace, the Commerce Department said.

At just about every turn, builders are paying more for materials. The wholesale cost of softwood lumber climbed 30 percent in the year ended March, data from the Labor Department show. Oriented strand board, or wood particle board, surged 68 percent, while gypsum products such as sheetrock climbed 18 percent.

“We’re seeing somewhat of a bottleneck,” said Michelle Meyer, senior U.S. economist at Bank of America Corp., ranked the top forecaster of new-home sales in the past two years, according to data compiled by Bloomberg. “There’s more demand for these products, which means the housing industry is healthier and the economy is healthier.

“Higher costs are one reason home construction is not rebounding faster,” said Meyer, who projects residential building will add 0.5 percentage point to gross domestic product this year and 0.65 percentage point in 2014, which would be the most since 1983. Last year, it contributed 0.3 percentage point.

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