Material price index drops temporarily

The construction material price index dropped 1.4% in September, the first significant decline during the last three years—apart from the price surge resulting from temporary supply interruptions caused by Hurricane Katrina.

Several factors contributed to the decline: a sharp drop in crude oil prices; lowered demand for materials such as cement and metals priced in international markets; and less demand from homebuilders, which caused manufacturers and distributors to discount prices to clear out unexpected surplus inventory. Inventory clearing and price discounting will continue through the end of the year when the price index is expected to rise.

Lumber prices will remain weak but are not expected to weaken much further. Gypsum product prices are set to decline significantly as the number of housing units under construction drops to a level consistent with current home sales. Price increases for ready-mix and concrete products will fall from their nearly 10% annual growth to a 6-7% growth rate.