As prices at gas pumps continue to hover around the four-dollar mark, builders in Central Kentucky are beginning to feel the squeeze of increasing materials costs and delivery surcharges and persisting consumer concerns about the economy.
Andy Haymaker, president and co-owner of HM Homebuilders, said his company has been getting at least three notifications of new fuel surcharges from suppliers every week, typically adding from $25 to $50 per delivery.
For construction jobs that average 10 deliveries of materials like brick, sand and mortar, on top of shingles, roofing supplies, lumber and other building essentials, it adds up quickly, Haymaker said.
"As a builder, you are essentially the end user, because at this point, the ability to pass fuel surcharges or other price increases along to the customer is nonexistent," Haymaker said. "When times are booming you can do that, and when they're not, you can't."
In addition to gas prices making consumers more reluctant to dive into large purchases such as new homes, Central Kentucky home builders have been working to overcome the perception of a weak housing market created by national real estate news reports. Historically, Kentucky real estate has remained insulated from the extreme ebb and flow experienced in more volatile markets across the country, according to many longtime local builders, but convincing home buyers of that lately has not been easy. Add to that consumer credit worries related to the subprime mortgage market, and justified or not, local builders are feeling the pinch from the country's perceived economic pain.
"It truly felt like housing was about to come off the floor and that we were about to bounce," Haymaker said. "I thought maybe we'd found a bottom in late fall and really early spring this year, and then you had this dramatic run-up in oil prices and you had a lot of talk about recession in the overall economy. And then it became an overall economic problem instead of just a housing issue."
While unpleasant and certainly untimely for home builders, the overall hit from gas price increases hasn't been as painful as some reports make it seem, according to Mac Crawford, president of Crawford Builders, but he wishes more consumers would see it that way.
"I don't think here in Central Kentucky our (real estate) market is as depressed as what the national news would allow us to believe by any stretch," said Crawford. "Our market is down, because when you get the bad publicity, people tend to back off buying."
Crawford said his company has been receiving notices almost daily of fuel increases or new fuel charges from suppliers. While he can sympathize with fuel-dependent businesses experiencing 33 percent price-per-gallon increases in transportation costs over a year, a few suppliers have cited fuel costs to justify price increases of as much as 15 percent to their total overhead, he said, which would seem to reflect more than the recent rise in gas prices.
"As a business owner, I would suggest to other business owners to be more realistic in watching their increases, because we all have to be sensitive, Ö and we don't want to stifle our economy," Crawford said.
The majority of fuel-related increases his company has seen have been more reasonable, Crawford noted, but many home buyers looking for a bargain from local builders have been less understanding.
"It's tough to pass it on to the consumer when the consumer hears on the news media that it's a down market and housing is going down in price," Crawford said. "But you have to judge us as manufacturers. So if our raw product goes up, there's only so much we can absorb."
In addition to the fuel surcharges, costs have been rising dramatically for building materials that depend on petroleum for their production, such as asphalt shingles, plastic pipe, and vinyl siding.
"The main effect for new construction has been the roofing materials," said Mike Kerwin, owner of Mike Kerwin Homes. "Where historically in the past, (a price bid for) certain items would be good for a six-month period until you finished the project, now shingles are pretty much a day-to-day pricing item."
Kerwin estimates that the cost of asphalt shingles, for instance, have gone up roughly 50 or 60 percent. At the same time, the cost of rough lumber has fallen slightly, in part because of lower demand from the construction industry.
"Most of our materials are heavily influenced by transportation costs, so we're feeling it kind of across the board," Kerwin said.
Because of the industry's dependence on those materials, finding ways to control and offset the cost increases has been difficult, Haymaker said.
"You can try to cut down on deliveries as much as possible," he said. "You try to look for alternative products Ö You've got to search high and low, but there are not a lot of easy answers out there because everything's getting more expensive."
The more obvious answer for many builders with expenses rising and sluggish demand has been to slow down production, Haymaker said.
"We've started doing some things like commercial fit-up work for office buildings and other light commercial construction," Haymaker said. "That segment of the market hasn't been hurt nearly as bad, at least in our market. Relatively speaking, the commercial side has been fairly stable, outside of retail."
Haymaker pointed out that the pinch being felt by the local construction industry is nowhere near as painful as the punch real estate has taken in overvalued markets like Las Vegas, and some local projects have fared well despite the pressures. He also said the pent-up demand from potential home buyers in Lexington appears to be building, as consumers wait for some positive economic signs to inspire them to open their wallets.
"Traffic has been pretty good throughout the spring, in terms of people coming through models and people looking at houses," Haymaker said. "There's a lot of people riding the fence right now. There are a lot of buyers out there, a lot of people who have the money, and they are just kind of waiting to feel like it's the right time."
Kerwin agrees that the most disconcerting aspect of rising gas prices has been the psychological effect it has had on the general consumer who might have been on the verge of a new home purchase or remodel. Still, Kerwin said his business is up for the year despite the difficult market, thanks to a growing number of referrals.
"It's a tough time to be a home builder," Kerwin said. "But I say that, and I've never done any better than I have this year."