Costs dive as building materials demand dry

Morning meetings at upscale custom homebuilder HomeCrafters in Reno often make co-owner Troy Means choke on his coffee these days.

When his project manager presents him with bids for review, Means can't believe the bottom-line numbers he's seeing.

"The first thing I always look at is the same thing probably all our clients look at I go to the very back page and look at the final number and price per square foot for the house and go, 'OK, we need to go through here. Something's missing, something's not jiving.' We'll go through these bids five times over because the overall price is so much lower than two years ago," Means says.

The current housing slump means less new construction and less demand for building materials. As a result, materials prices have fallen sharply across the board.

A pricing index from the National Association of Home Builders shows that in September of 2004, 1,000 board feet of lumber sold for $407. In September of 2005 it fetched $405. Last month that same unit of lumber sold for $271, and as of Oct. 19 the price had dropped another $10 a 36 percent decline from the 2005 price.

"It has affected dollar sales for us," says Mark Morris, assistant manager for Copeland Lumber Yards in Carson City. "In previous years, especially last summer, materials prices were not where they were in years past. People aren't building spec homes, and the tract homes are stopping production."

The bottom line: Builders such as Means are telling customers it's a good time to buy, and a great time to build.

"If I were to take a home we priced for a client say two years ago, and we were to take a like, comparable home today, I am seeing costs down as much as $25 per square foot," he says. With HomeCrafters dwellings averaging about 4,500 square feet, that's a savings of more than $100,000.

"That is pretty substantial," says Means, who adds that today's lumber prices, after adjusting for inflation, are lower than they were in 1981.

Along with lumber, other materials costs also have fallen sharply as residential construction slumped.

The cost of sheetrock, Means says, has fallen 30 percent in the past 12 months, and stucco is down 15 percent. He estimates excavation costs have fallen 30 percent as well a surprising decline in a time when fuel prices have risen sharply.

Additionally, as more insurance carriers compete for business in the construction industry, general liability insurance rates for general and subcontractors have fallen as much as 25 percent.

"If you are looking for a custom home to be built, now is a real good time," Means says. "Even the new home communities, if you look at the incentives, the deals that are out there, what builders are offering and what interest rates are now, this is a pretty darn good time to buy."

Copeland's Morris says cost pressures, however, could rise in the short-term as the result of reconstruction of more than 2,000 homes lost to wildfires in Southern California. Winter weather does not limit building in the Golden State.

"I don't see any major increases," Morris says. "It will be a flat market for a few months until demand (from Southern California) pops up. After that it will follow the dollar and the economy."

Morris says although pricing has stayed fairly consistent for engineered lumber such as pre-fabricated joists, it has dropped somewhat recently due to decreased demand.