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insulating materials - are experiencing similar market pressures.
"Rising wholesale prices of building materials have added $5,000 to $7,000 to the cost of building an average new home, and
construction delays caused by supply shortages could translate into further cost increases," said Jerry Howard, executive vice
president and chief executive officer of the National Association of Home Builders.
At the base of the inflating materials costs is continued strong demand for single-family homes and condominiums. Housing
starts climbed back to the highest pace of the year in August, reaching a seasonably adjusted annual rate of two million
units, according to the U.S. Department of Commerce.
Despite strong demand, there has been little increase in OSB capacity since 2001 and plywood capacity has actually fallen
each year since 1999, according to the NAHB.
Home Builders Association of Greater Southwest Illinois, said long-term low production levels are also a contributing factor.
"A number of drywall manufacturers in the 1970s and 1980s had closed their manufacturing facilities because the housing
market was so bad then," he said. "In the 1990s, the housing market started to rebound. And in the late 1990s to early 21st
century, some of those manufacturers just began to get back to the levels of production that they were at in the late 1970s by
opening new facilities or reopening shuttered facilities," he said.
According to Random Lengths, a weekly publication that reports on the wood products industry, 1,000 board feet of framing
lumber reached an all-time high of $474 in mid August - compared to $322 in August of 2003 and just $294 in August 2002.
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By mid September, the price had fallen to $458 but that was before the impact of Hurricanes Charley, Frances, Ivan and
Jeanne could be determined. The total combined destruction of these hurricanes has been estimated to be in excess of $20
billion.
According to the National Oceanic and Atmospheric Administration of the U.S. Department of Commerce, Hurricane Andrew in
August of 1992 was the most destructive single hurricane of record, causing $26.5 billion in damage.
Gregory Gieber is a vice president and home building analyst with A.G. Edwards Inc. in St. Louis.
Gieber said he was expecting some relief from the high materials prices, but the hurricanes have dashed that hope.
"I expect housing to cool because of rising interest rates into the fall and early next year," he said, "but I think the
hurricane will offset any of that reduction in demand and keep pressure on materials prices."
According to Gieber, the last large hurricane, Hurricane Andrew in 1992, resulted in a temporary spike in materials prices
that - combined with a strengthening housing market - accelerated materials price inflation in the economy through 1993. "You
have a multiplying effect when you have a hurricane on top of strong demand," he said.
Gieber also predicts an impact in construction labor.
"When Andrew hit, a fair amount of the labor that did a lot of the work was migratory labor that came down from the
Northeast and Canada," he said.
Rombach agreed with Gieber's assessment.
"It's been something that's been building for two or three years and those materials are only going to get worse as the
South starts its recovery from this series of hurricanes," he said.
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