When the economy was strong and construction was booming, prices for products such as lumber and drywall rose almost by the day.
After the economy crashed and construction went from a torrent to a trickle, contractors such as Ted Benning said they could count on those prices to routinely drop in line with the slacking demand.
The picture now, though, is starting to get murky.
Though the construction industry isn’t exactly booming, Benning and other Georgia contractors are seeing the cost of building products heading up again, and that could mean dollars won’t go quite as far for everything from public works projects to home renovations.
But indicators at a national level suggest the price increases that some local contractors are seeing could reverse slightly given global economic uncertainty.
“I think that the question of whether [price hikes] stick or not is a question of demand,” Benning said.
Ready-mix concrete and electrical wiring components are among the products suppliers have said could rise 5 percent to 10 percent in the new year, the president of Atlanta-based Benning Construction said.
The Atlanta Journal-Constitution recently reported Cobb County was seeing bids for school construction projects rise unexpectedly, though other metro counties weren’t seeing quite the same phenomenon.
The construction business, particularly in Georgia, hasn’t fully recovered from the Great Recession, and in some ways might be just above bottom. But prices for building materials have just as much to do with local demand as they do with the development rush in fast-moving economies such as Brazil, China and India.
Bill Anderson, president of the Associated Builders and Contractors of Georgia, said his members have indicated they are seeing prices rise, but data from the national level indicate it might be a temporary trend.
Overall, construction prices dipped in November by 0.1 percent but are up 6.2 percent over last year, according to a report by Associated Builders and Contractors, citing government data.
Monthly steel prices have declined, though steel is still up 11.2 percent over November 2010, the report said. Petroleum, which affects the price of transporting commodities, is up 19.3 percent over a year ago.
The economies of Brazil, China and India are slowing, and the dollar is gaining some strength relative to the euro, the report said.
“There has continued to be downward pressure on commodity prices,” Anirban Basu, the chief economist for Associated Builders and Contractors, said in a Dec. 15 report. “This is likely to translate into additional declines in construction materials prices as we approach 2012 and beyond.
“However, the decline in construction materials prices is most welcome and may induce a larger number of projects to move forward than expected,” Basu said.
The cost of labor also is a bit of a wild card. Subcontractors often are still bidding at rock-bottom prices. But in some trades or locations, there’s less competition, Benning said, because some contractors who had bid for work at unsustainably low prices are now out of business.
The remaining players can charge higher rates, said Benning, whose firm builds shopping centers, educational facilities and other large projects. The costs of health care and other types of insurance also are rising.
For building material prices to soar, it would require stronger U.S. demand and a ramp-up of activity in emerging markets, said Conor McNally, chief development officer with the Atlanta-based real estate firm Carter. Carter has projects throughout the Southeast and Midwest, including a $600 million mixed-use project in Cincinnati.
McNally said his firm has seen isolated cases of price increases, but construction costs largely have stabilized.
The industry, he said, has seen sudden “blips” in prices as producers of building materials try to rationalize their supplies with wobbly demand.
The industry saw double-digit price inflation from 2003 to 2006 for supplies and labor, McNally said, which corrected with the fallout of the economy.
Bids for projects remain aggressive as there remains a lack of demand.
“We’re technically in recovery,” he said, “but it’s a slow and hard one.”
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