Housing market stability is being impacted by a variety of factors this year, with industry experts worried that home ownership is slipping out of reach for many Americans.
Among all these factors, the rising price of copper is one of the largest contributors to current increases in both housing construction costs and home renovation costs.
Copper Price Fluctuations
One look around an average house and you can see why copper has such a big effect on home construction and remodeling costs. Copper is used in electrical wiring, plumbing, appliances, and hardware. It can be used for roofing, heating and air conditioning systems, and is used to produce brass fixtures. In all, an average house in the U.S. contains more than 400 pounds of copper, according to a recent Wall Street Journal article. It makes sense that copper price fluctuations impact home building costs.
In fact, construction is the largest single source of copper demand globally, according to a recent blog by the financial technology company Gotrade Securities Inc. Other sources of copper demand include the power infrastructure which includes electric grids, transformers, and renewable energy installations. The move toward clean energy has increased this demand. Automotive and industrial machinery make up another segment, with electric cars being a new area of demand for copper. Electric cars use three to four times more copper than a combustion engine vehicle in their battery, motor and charging infrastructure. Because copper is used in various sectors of the economy, its price is driven by demand in these area, with the data center building boom being the latest example.
China is responsible for half of total global copper consumption and will maintain strategic stockpiles. This also must be factored into the consideration of copper prices. According to a recent JP Morgan report, the current price increase reflects the fact that China has halted exports of sulfuric acid to protect its supply. Sulfuric acid is a key component for some copper mining processes. Some 15 percent of global copper production relies on sulfuric acid according to the JP Morgan analysis.
An additional factor in current copper pricing is on the supply side. Global output of copper has been tight since the world’s second largest mine in Indonesia has limited output after a fatal mudslide last fall. The mine owned by Freeport-McMoRan reported that output would remain reduced by tens of thousands of tons into next year, according to the Journal.
Construction Industry Outlook
Rising copper prices, along with higher costs for lumber, plastics, and mortgage interest rates, have increased the cost of building and remodeling homes. Industry experts say builders are feeling the strain of these higher expenses. According to a National Association of Home Builders (NAHB) recent report, confidence among U.S. home builders decreased in June because of affordability concerns. The association reported that 70 percent of respondents are having difficulty pricing homes because material costs remain unpredictable. Home builder sentiment will remain soft until conditions ease, the group stated. The trade group Associated Builders and Contractors also expects these pressures to continue weighing on construction in the coming months.
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