Something that contractors and homeowners both look at and should pay close attention to year in and year out are the material costs. This is especially important because then you can adjust and price out projects according to rising and lowering costs of materials. Unfortunately, the trend for this year, as it is coming to fruition, is that material costs will go up.
This includes lumber, ready-mix concrete, gypsum, labor costs, crude oil (diesel/gas) and many more items. Yes, I include both labor and oil because they directly affect the pricing strategies that will need to be used when pricing out projects.
Lumber
Here is a little insight as to why the cost of lumber is rising. Our trade agreement with Canada concerning the softwoods that are used in a big portion of our market, has not been renewed since 2015, and it doesn’t seem like it will be for a while. With big differences from both sides of the negotiation, both parties feel they can’t reach an agreement.
So how much will be expected for a rise in lumber materials? According to the Bureau of Labor Statistics, lumber prices were up 7.2% after the first three months of the year. This is quite a jump in materials cost for this product alone. So when you are pricing out projects, pay close attention to material costs. Although you cannot adjust pricing of projects that have started, be sure to adjust for future ones this year!
Labor Shortage
Yes, the labor shortage issue has yet again been brought up. Last month I did an entire blog on the labor shortage and why it was happening. So we all know that and can agree that it is an issue. Well, what wasn’t mentioned was how it directly affects companies. That direct impact comes from an increase in wages. With less comes more? In this situation, it is completely true. Increasing costs of finding employees and raises for current employees, you cut in to the bottom line, ultimately losing money. Unless, as mentioned before, you begin to price out projects that adjust with inflation and the rising material costs.
Diesel/Gas Prices
After paying surcharges, if your supplier charges you for deliveries to jobsites, and running your own fleet of workers back and forth, the price can rise quickly for fueling up. So in essence, you’re paying for the increase of lumber and other building materials, on top of delivery fees, if there are any, you now see a pretty steep price increase. Can you see where this is going? Again, although not a building material in most cases, it does directly affect your business. It ties in directly with the rise of other material costs, and should closely be watched as well.
Other Materials
A few more items to mention would be ready-mix concrete and gypsum board. Both have increased since the begging of the year. Ready-mix going up by 0.3% and Gypsum rose by 0.2%. These are minimal increases but could mean good news. This could be an indication of prices steadying and not having to worry about sharp increases and decreases if there were to be any.
Wrapping things up..
The rising cost of building materials is something that a lot of contractors pay attention too. All are expected to rise this year in price, and contractors will notice. Don’t forget to pay attention to the other non-material items such as labor costs and gas/diesel. They can add up quickly and undercut a budget in a negative way.
All-in-all, there are ways to combat these price increases. Start planning out different projects based on market projections of material prices. See what the experts say and always be prepared for sudden spikes or decreases. As for gas/diesel and the laborers, you can budget those out pretty accurately. Although there are always unforeseen instances, having an idea of where you want to stay within never hurts.
Sources:
https://www.bls.gov/news.release/ppi.nr0.htm
http://nahbnow.com/2017/04/cost-of-building-materials-is-on-the-rise/
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