building materials

Building material prices to keep soaring till 2022

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Building materials prices are seen remaining elevated until at least the middle of next year, according to economists at ING.

“It will take at least until the summer of 2022 before we expect the price of some building materials, notably concrete, bricks and cement, to drop,” the banking group said, adding that “constructions firms’ suppliers first need to improve their historically low levels of inventories.” Timber and steel prices will probably settle down earlier.

“We first need to see some stock improvement, before the prices of building materials such as concrete, bricks and cement stabilise, let alone decrease. So, taking the six to nine months price delay into account, we do not expect prices of concrete and cement to come down before the summer of 2022.”

“Due to the value chain disruptions, we expect shortages of timber and steel to remain an issue until at least early 2022. Therefore high prices for timber and steel for construction projects will remain for the coming quarters before settling down” the economists said.

“For steel and timber, there is a global market with a huge number of buyers and sellers. This makes these markets competitive and transparent and this results in a more direct pass-through in the value chain of price changes of raw materials. Conversely, the markets for concrete, cement and bricks are more local. This is due to the characteristics of these materials. They are large and heavy and therefore difficult and costly to transport. This makes these markets less competitive” ING explains.

building materials
(Source: Eurostat, ING Research)

According to the economists, the building materials’ price hikes have put building companies’ profit margins under pressure. “This can easily lead to loss-making projects as profit margins are thin in the construction sector, generally about 2 to 4%. The development of output prices of construction projects and input prices of building materials are in general closely related. However, from 2018 until the end of 2020, contractors’ output prices increased faster than the input prices which could have resulted in higher profits. Yet, due to the higher building material costs input prices are catching up quickly and saw their biggest increase in the first quarter of 2021 since 2004 and this puts pressure on those margins.”

“European building material companies are still dealing with higher costs. As a result, many European manufactures are expecting to increase their output prices even more” they added.

contractors prices
(Source: Eurostat, ING Research)

Across the Atlantic, the cost of almost every single item that goes into building a house in the U.S.  is soaring. In some cases, the price increases have topped 100% since Covid-19 struck. The simplest explanation is that there is just too much demand for builders and their suppliers to handle, according to Bloomberg.

While rising costs have canceled some construction projects, real estate consultancy CBRE says 2021 will still see a boom in commercial construction.

Projects costing more than $50 million each will go up by at least 40% year-over-year for total completions of 430 million square feet.  Multifamily projects make up most of these projected projects at around 45% or 194 million square feet, followed by warehouse projects (36% or 158 million square feet), office projects (17%) while retail projects are just under 2%. Residential development spending is at 95% of commercial real estate development, the consultancy said.

“With thriving single-family home markets across the US seeing even more new development and permit authorizations in 2021 at a 10-year high, this trend shows no sign of reversing,” CBRE says.

The construction boom is coming but home buyers and renters are being forced to pay much higher costs for housing, along with many other things.

“The global recovery is well underway, but it will take several years for some sectors to approach or return to their pre-crisis levels,” Richard Barkham, CBRE Global Chief Economist and Head of Americas Research stated. “Concerns about inflation likely will cause some market volatility, but we anticipate that central banks won’t need to raise interest rates in the next 12 months. This will support economic growth for the next two years and create a positive environment for commercial real estate.”

CBRE also predicts the recovery for global real estate investing and lending will gain momentum in this year’s second half and into 2022. According to the consultancy multifamily will become the leading global investment asset class in the near future.

UPDATE 16/11/2021

Homebuilder confidence hits six-month high

U.S. homebuilder confidence unexpectedly continued to improve in November as higher prices and longer wait times do not appear to be turning buyers away from the nation’s homebuilders.

The National Association of Home Builders released a report on Tuesday (Nov. 16) showing the NAHB/Wells Fargo Housing Market Index rose for the third straight month, climbing to 83 in November from 80 in October.

Anything above 50 is considered positive.

“The solid market for home building continued in November despite ongoing supply-side challenges,” said NAHB Chairman Chuck Fowke. “Lack of resale inventory combined with strong consumer demand continues to boost single-family home building” he added.

UPDATE 15/11/2021

Prices jump 24.5% in one year in the UK

The construction materials shortage has seen prices rocket this year. pPrices for all building work soared by 24.5% in October compared to one year prior, according to the U.K.’s Department for Business, Energy and Industrial Strategy (BEIS). At the same time, the costs of repair and maintenance have risen even higher, a 26.2% increase compared to October 2020.

Building Materials
(Source: Homebuilding. co.uk)

Fitch: Neutral Sector Outlook for EMEA Building Materials & Products

Fitch Ratings’ outlooks for the EMEA building materials and building products sectors are neutral for 2022, reflecting sound development trends supported by strong demand from greater public spending and activity in the private commercial sector, the rating agency says.

Building products input costs have soared in 2021, largely due to pent-up demand and logistics issues. The prices of energy, chemicals, wood, metals and labour have been affecting gross margins in 2021. Building products companies have typically been successful in pushing price increases through to customers in early 2021 and more recently, to position themselves for continued inflation in early 2022 at least.