Not long ago, I was discussing with an acquaintance the issues with increasing building material costs as we head into 2011. Everything points to rapid cost increases, and wholesale inflation in the construction sector. Labor, fuel for delivery, commodities, environmental regulation, and all the supply and demand economic issues which go with economic expansion, which is where we are headed in 2011.
Now then, should an HOA consider the timing if they are going to for example make a decision whether or not to spend on refurbishing such a painting, or roofing? Okay so let’s talk about this shall we, let’s talk about costs and future increases.
For instance, we know that transportation Costs to deliver building (roofing) materials – as oil is going to $100/ barrel mid-year 2011, I’d say a trading range of $95-$109 in 2011- which equates to higher pump prices, and building materials are heavy, and must be transported. This could add an additional 10% and another ten percent in production of that material. Not even touching on the raw materials and commodity markets of so much of the building material supplies. I also recently talked to a semi-retired floor tile wholesaler, he said prices were already rising and expected them to continue to rise, even their Chinese building products.
In essence what I am saying is that ALL indicators that I can see point to higher building material and construction related costs, and those price increases will far outpace sticking the HOA’s money in a money-market or interest bearing account. I just do not see any rational argument against you ascertain that now is the time to invest.
Also consider the 2010-2011 roofing tax credits, which will be expiring, that ought to pique the interest of a Home Owners Association right about now? Why not take advantage of those savings too? And Reed Construction Data forecasts show semi-favorable supply issues, but increasing wholesale costs for materials throughout 2011. Allied Building Materials has put out a letter to all their customers of interior construction materials price increase effective January 1, yes, that’s interior not exterior, but it tells the same story. RPM announced its second quarter results, with this little tid-bit from a shareholder’s report from:
“Our industrial segment should continue its strong performance in the back half of this fiscal year, with signs of improvement in the depressed commercial construction market this spring, while consumer sales are expected to be relatively flat as they face very strong prior-year comparisons, combined with consumer uncertainty. We anticipate that raw material challenges will persist through the remainder of this fiscal year,” Sullivan stated.”
Which suggests that they may not be able to pass on those increased raw material costs, and this company does make: “RPM’s industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals.” Now then, regarding my comments in a previous article about Construction Labor Costs in 2011, and the construction environmental components with the labor unions, I am pretty sure I am correct on that, I’ve been talking to a lot of folks here in Palm Desert CA in the construction sector. It’s going to drive up costs.
Also for those HOAs dealing with construction materials made of concrete, such as “concrete roof tiles” well, the making of concrete produces “CO2” which is now considered a pollutant by the good ole’ EPA, so the costs to create anything made of concrete will be more in the future. CO2 creation in the production of building materials already raising costs in EU, and it is going to happen here in the USA too. When talking about increases in concrete products, it’s already happening in fact; 6-10% increase as of January 1, 2011, at least according to Grace Construction materials which states:
“Grace Construction Products, an operating segment of W. R. Grace & Co. (GRA 25.06, -0.20, -0.78%), today announced plans to increase prices on its concrete admixture and decorative concrete product lines on a global basis. The increases average from six to ten percent, depending on product, and will be effective on January 1, 2011, or as contracts allow”
Indeed, there may not be an abundance of empirical data telling the complete story of increased construction material costs, but rest assured prices are going to rise, and the current trend shows they already are. Everything I’ve seen, and all the data available seems to point all in the same direction, I don’t see anything jumping out at me that would lead me to believe anything other than my first article on this topic suggests. In fact, it might be a more serious issue than I thought, now that I look at it more closely.
Indeed, this is now the official recommendation for HOAs wondering if now is the time to do upgrades and repairs, and this is the official forecast of Online Think Tank for 2011.