Katrina boosts building material prices in area

Katrina's Wake

September 03, 2005|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

Hurricane Katrina's destruction is putting more pressure on the already heated housing market - even in the Baltimore area, a thousand miles away.

Market prices nationwide increased 5 percent to 10 percent for lumber and 20 percent to 25 percent for plywood and oriented strand board between Wednesday and yesterday, said Mark Hunt, who manages three local building-material facilities for Builders FirstSource. He attributes the unusually large increase to panic as much as anything else.

Lumber and its related products total about a quarter of the cost of home construction.

Industry analysts think the hurricane's impact on building is temporary, but homebuilders in the Baltimore area are worried about lingering effects. Their supplies could be disrupted because the closed port of New Orleans is a top destination for imports of cement and handles large amounts of lumber and other building materials.

The homebuilders say their transportation costs will probably rise because oil prices have. And they think an already tight local labor pool might relocate when the devastated Gulf Coast cities start to rebuild.

These problems could make houses more expensive in a region where the average sales price for a home is already more than $300,000. And buyers might have to wait longer if they want a new house.

"I think it's reasonable to assume that there's going to be cost [increases] and shortages that we're all going to feel for some time into the future," said Sandy Marenberg, president of the Baltimore chapter of the Home Builders Association of Maryland.

Mark Somerville, purchasing manager for Ryland Homes in Maryland, is bracing for that challenge. He's heard that a dozen mills in the Gulf Coast are shut down and hundreds of thousands of board feet in lumber products were lost on the docks of New Orleans.

He figures he has enough materials on hand for the next month or so, but he said tons of building supplies and untold numbers of construction workers will be needed in Louisiana, Mississippi and Alabama once the region is under control.

Many of New Orleans' 200,000 homes have been flooded for so long that they are probably damaged beyond repair, according to an analysis by the National Association of Home Builders. Hurricane Andrew of 1992, by comparison, destroyed about 28,000 homes.

"It's going to have a very serious impact on materials and labor," Somerville said.

Others are more optimistic.

The National Association of Home Builders thinks home prices in areas like Baltimore won't be affected much because, historically, areas hit by hurricanes rebuild slowly.

And Hunt, of Builders FirstSource, is convinced there won't be lumber shortages because much of the supply isn't affected. Most of the lumber used in this region comes in by rail or truck from the West Coast and from Canada, never passing through the port of New Orleans, he said.

He said lumber costs are shooting up now - and will probably continue to rise for a while - thanks to a mix of panic buying, price gouging and the effects of $3-a-gallon gas.

Hunt has enough stock for the next 35 to 40 days and has just as much on the way, but he's feeling the price pinch. "What I'm buying now for 40 days down the road, I'm paying a lot more money for it," he said.

Oriented strand board that cost $9.50 a sheet before the storm was $12 a sheet yesterday, he said. (The product, known as OSB, is used in the same way as plywood.) Eight-foot 2-by-4s that were $380 per thousand increased to $410 per thousand.

"There's been immediate emotional reaction," said Shawn Church, editor of Random Lengths, a forest products industry newsletter. "These are some of the biggest weekly price increases we've ever seen."

Luxury homebuilder Toll Brothers doesn't expect to feel much impact from the price increase because it buys its building materials with long-term contracts, said Louise Valdov, a senior marketing manager for the company. But energy shortages, she said, "will affect everyone."

On the other hand, Katrina may balance out its own effect on home prices.

Interest rates are falling as investors, concerned the hurricane will hurt the economy, throw money into bonds. Lower interest rates mean lower mortgage payments.

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