Michael Carliner, an economist with the National Association of Home Builders (NAHB), says that whether material costs increase this year or not, builders probably will raise their prices.
"Most new homes these days are pre-sold, so last year's prices were based on what builders thought would happen, and they ended up getting squeezed," Carliner says.
The NAHB estimates that material prices boosted the cost of building a house by $5,000 to $7,000 last year. "This year, many builders are building a contingency factor into the sales contracts, although we don't think the increases in material costs will be as great as in 2004," Carliner says.
Why? Because the residential-construction industry is anticipating a slight drop in the number of housing starts this year. There is a growing belief among economists that 30-year fixed mortgage rates will increase enough in 2005 to reduce sales.
Economists had predicted that for 2004, as well, but long-term rates declined further, boosting new- and existing-home sales to record levels.
Some builders remain willing to bite the bullet.
"We have no contingency clause in our contracts," says Gary G. Schaal, vice president of sales and marketing for Orleans Homebuilders, the region's fourth-largest builder. "We do a good job pricing, and we should get the houses done in the time allotted by the contract to keep costs in line.
"If we don't, shame on us."
According to February's Producer Price Index, released Tuesday, prices for concrete products rose 1 percent last month. The price of steel dropped 0.2 percent in February from January; lumber rose 6.1 percent; and asphalt rose 3.2 percent.
Compared with February 2004, the price of steel was up 37.7 percent; concrete products, 9.4 percent; lumber, 10.8 percent; and asphalt, 6.3 percent.
