A Natural Disaster’s Trickle-Down Effect

March 17, 2010

In 2005, Hurricane Katrina became the costliest hurricane in the history of the United States and one of the most deadly. Not only did it immediately affect the lives of thousands of people in the Gulf of Mexico, but it also created a trickle-down effect in many industries worldwide, including the construction and new home building industry. Building materials became more scarce and, as a result, more expensive. With the recent devastating earthquakes in Haiti and Chile, we’re seeing a similar trend again. In the past six weeks alone, lumber for one average home has increased more than $1,200 and the price for sheetrock is expected to rise quickly by 20 percent or about $300 per house. Again, the natural tragedies are pushing demand for all commodities. Copper’s price is starting to experience a similar increase as well.

In addition to the demand created by the natural disasters overseas, the extension of the Federal Tax Credit for new home buyers, which expires April 30, has provided a boost to the construction industry. Since lumber mills had cut back their production when the recession curtailed building, mills don’t have the supply to meet the upsurge in demand. The mills can now increase pricing, with builders and, ultimately, buyers bearing the brunt.

We can’t predict natural disasters or what the government will do. But new home buyers can take control of their plans to build by being aggressive now, in order to secure the best pricing for materials.