Sunday, October 02, 2005

Thoughts on Plywood, Steel, and Concrete

Fester has been going on about the housing bubble for some time now. The underlying premise from Mr. F. seems to be, to borrow an old saying from my people, "We is all gonna die."

Well, maybe that's just paraphrasing on my part.

Mr. F. is concerned, it seems, on the consumer side, tracking things like sales, availablity, ARMs, etc. All of the analyses he presents make me need to change my undies at least a few times. Both of us, it appears, are in agreement that there is a bubble and it will burst soon.

I've recently been tackling the producer side of the equation, and would like, if I may, to pull the Producer Price Indices from the BLS for various housing materials over the last few quarters. I've chosen plywood, structural metals, and concrete for my basic materials, as each are fundamental to modern housing construction and should be indicative of general housing costs. Basic premise: increase cost of materials mean an increase in the cost of new housing; an increase faster than the rate of inflation is bad. The results make me a little nervous.

Click on Me for Plywood

Click on Me for Cement & Concrete
Cement & Concrete

Click on Me for Architectural and Structural Metals
Architectural and Structural Metals

There's a clear trend upwards in Cement & Metals, but Plywood varies as much as 12.69%. This does not take into consideration, however, the recent Hurricanes and the effect of reconstruction.

From December 2003 to August 05 (est.) the PPI for Plywood decreased .6%; Architectural and Structural Metals increased 17.7%; Cement and Concrete Increased 16.30%. Meanwhile, the CPI increased 6.57%.

So the $64,000 question: will the cost of production drive housing costs up too high for consumers to actually buy, or, will consumers try to bend over backwards for housing they can't afford?

We shall see.

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