Building going up as material costs drop

Building going up as material costs drop

November 22nd, 2009 by Mike Pare in Volkswagen

Contributed Photo: Progress is seen at the VW construction site in this October 2009 aerial photo.

Contributed Photo: Progress is seen at the VW construction...

Some construction lumber costs are off as much as 40 percent from 2004 highs, while prices for certain grades of plywood are down even more from peak levels.

But, many builders aren't able to take full advantage of lower prices because they can't secure financing for projects, an expert says.

"It's a Catch-22," said Roger Tuder, chief executive of the Associated General Contractors of East Tennessee.

While some building prices have leveled out recently and even inched higher, others are down, driven by the drop in construction.

Last month, construction of homes unexpectedly plunged to the lowest point since April, the Commerce Department said last week.

Overall construction spending in September was off 13 percent from a year ago, the U.S. Census Bureau reported.

Chattanooga builder Jim Wilson said he has seen cost decreases in wood products over recent months. He said concrete prices are up.

"Some materials have increased and some have gone down," he said. "In general, there has been a slight reduction."

A Chattanooga contractor working on the Volks-wagen auto assembly plant project said steel prices dropped late last year 8 percent to 10 percent when economic activity plunged.

Mike Potter, co-owner of Southern Fabrication Contractors, said steel then steadied up after the initial drop but fell again around the middle of the year.

The VW project is using a lot of steel. The assembly plant's paint shop alone will utilize structural steel weighing about 4,900 tons, according to the automaker.

Mr. Tuder said some material costs are down in part because it's hard to find financing for projects. Therefore, many companies are using materials they've had in reserve, he said.

Mr. Tuder said he has heard some builders need 50 percent in cash before they can borrow the remainder.

"What we're hearing mainly is financing institutions tighening up credit requirements," he said.

Mr. Potter said Southern Fabrication has been busy because of its industrial customer base.

"We don't build Walmarts. I know those guys are getting killed," he said, referring to those in the commercial construction business.