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Building Material Costs Stabilize Easing Concerns About Real Estate Construction Costs

Supplies of key construction material stabilized or decreased within the past year, easing concerns about escalating costs for home builders and commercial-construction companies.

Part of the explanation: The slowdown in residential construction nationwide and in fast-growth states such as Florida has reduced demand.

Builders scrambled to find cement, a basic ingredient in concrete, during the boom years of 2004 and 2005. But by the second half of 2006, the downturn in residential construction cut demand just as production was picking up, reports suggest.

"Availability is not an issue anymore," said Edward Sullivan, chief economist for the Portland Cement Association.

Speaking recently during the International Builders' Show in Orlando, Sullivan said concrete has made strides in market penetration for home construction in recent years, rising from about 5.9 percent of new-home construction nationally in 1995 to an estimated 18.6 percent in 2006. Far more Florida homes now are built of concrete, partly as a result of hurricanes and demand for improved energy efficiency.

But Sullivan said a "large overhang" of newly built, unsold homes will have to be whittled down before there is any significant rebound in new-home construction. He said he is forecasting an 18 percent decline in housing starts nationally for 2007.

The U.S. Geological Survey, which tracks production and consumption of minerals and construction materials, recently estimated that domestic production of cement likely set a record in 2006 with about 99.8 million tons. The gray, powdery material is produced at 113 plants in 37 states.

Final year-end numbers still are being tabulated, but "when the dust settles, I think it will show a slight increase in production," said Hendrik G. van Oss, an economic geologist with the agency.

Consumption also was likely at an all-time high of 131 million tons, the agency estimated, but the rate of growth from 2005 was slower than during the three previous years. Year-end stocks rose, by about 1 million tons to 8.5 million tons, and the average price at the mill increased 7.6 percent to $98 per ton. That was about half the 15 percent rate of increase for 2005.

Florida in particular has been "sort of a black hole" for cement consumption historically, absorbing all it can find, van Oss said. But even in Florida, consumption during the final months of 2006 "took a tumble." The one thing that still is supporting demand and prices, he said, is ongoing use of concrete for roads and commercial construction nationwide.

Gypsum, a key ingredient that goes into cement and drywall panels used to form a finished wall, also posted a small increase in production in 2006 as well as an increase in imports. The increase in consumption slowed, according to preliminary estimates, as construction cooled and wholesale prices flattened.

In other recent reports, Ken Simonson, chief economist for Associated General Contractors of America, said material prices should be fairly stable at least through the first part of 2007.

He said the expansion of domestic cement supplies should continue this year, along with more imports from Mexico, and steel also should be more widely available. Plastics for construction are ample, he said, and gypsum prices could even decline by 10 to 20 percent.

ORLANDO, Fla. – Feb. 21, 2007 – Copyright © 2007, The Orlando Sentinel, Fla., Jerry W. Jackson. Distributed by McClatchy-Tribune Business News.

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