Rising building material costs: remodel now -- or later?

What determines the price of your remodeling project? The formula is simple: add the cost of the labor to the cost of materials and the result should be close to what you pay for the job -- plus or minus for a few variables. If it's a DIY project, the labor for tasks you take on yourself can usually be deducted. If a contractor is hired, some of their overhead might be tacked on.

While building material costs vary based on the type of renovation, materials still make up at least half of the total job price -- sometimes quite a bit more. When the construction industry is in a downturn, homeowners planning to remodel might get a break on labor rates, but is the same true for building materials? That often depends on what you need and when you buy it, but the current material price trend suggests buying sooner than later.

Building material costs: going up?

The pricing of materials commonly used in a residential remodeling project -- just like the value of stocks on the Big Board -- can fluctuate quite a bit. Plywood that's used to protect homes from storm damage in Florida, for example, can create a shortage that ripples across the entire country, causing prices for the material to jump. It's the basic economic theory of supply and demand. The principle is the same with materials such as framing lumber, shingles, siding and even floor coverings -- when materials get scarce, costs usually go up.

So what does a severe downturn in the construction industry do to building material costs? The logic that reduced demand should equal plentiful supplies and lower prices holds true for a few materials, but many material costs seem to be headed in the opposite direction. According the Producer Price Indexes published on The Associated General Contractors of America's website, the following increases have taken place since August 2011:

• Gypsum products - 17.8 percent
• Architectural coatings - 11.7 percent
• Insulation materials - 7.1 percent
• Lumber and plywood - 6.9 percent

The news isn't all bad -- brick prices have dropped 2.4 percent since August 2011 and steel mill products have decreased by 8.2 percent. But most residential remodeling projects are more likely to utilize gypsum, lumber, and insulation than steel-based materials. So why have costs been increasing while demand has been low?

Reduced demand has reduced supplies

During good economic times and bad, building material costs rise and fall based on the cost of manufacturing. Petroleum-based products such as asphalt shingles and vinyl siding may increase in price with the cost of oil, but then fall back when the price of crude drops. However, Tracy Meade of Meade Construction in Charlottesville, Va. attributes much of the recent price escalation to a more long-term dilemma: reduced production. She said, "The downturn has caused quite a few building product manufacturers to close their doors and others to limit production. The result is fewer available materials and higher prices."

An article on theTelegramNews.com concurs with Meade's conclusion: some building material manufacturers are still adjusting to the current residential construction market by closing plants and reducing labor.

As the primary interior estimator for her company, Meade is finding it increasingly difficult to meet her customer budget limitations for remodeling and new construction projects. Kitchen remodeling projects are her specialty, but even they have become a challenge and require careful price comparisons between the various cabinet distributors. She doesn't see building material pricing coming down significantly until the residential construction industry gets back on its feet and related manufacturers begin increasing production -- something that may be a while coming.

Should remodeling wait for prices to come down?

Contractors often get around temporary building material increases by stocking up when prices are low. Unfortunately, this isn't an option for most homeowners planning a remodeling project that they hope to start in the near future. However, you can do the next best thing: spend as much time comparing material costs as you do interviewing prospective contractors.

Rather than simply choosing an exterior finish like vinyl siding, get pricing for other options such as fiber cement, wood, or even brick. If you're doing some kitchen remodeling, consider options like ready-to-assemble cabinets that may be a little friendlier on your budget. Taking additional time during the planning and estimating stage of your project could make it more affordable. And if you're hiring a contractor for the job, stand firm that, like Meade, they do some comparison shopping, too, and get you the best prices on materials.

Of course you can always postpone and gamble that material prices come down. But, if the increases over the past year indicate a long-term trend as evidenced by the decrease in building material supplies, it's a bet you might end up waiting a long time to win.