Supplies and demand

Massachusetts house hunters are well acquainted with sticker shock, but one more thing is pushing up home prices: the cost of nails. The culprit? Voracious demand from a red-hot Chinese economy that's consuming just about anything made of steel, builders and economists said.

And with the Chinese economy roaring and the US economy gaining momentum, the two countries find themselves competing for supplies, a phenomenon being felt in Foxborough, where Greg Spier is paying more for the nails he uses to build four-bedroom Colonials.

''Prices are way up," said Spier, president of Maystar Realty Corp. and president of the Home Builders Association of Massachusetts. ''I've been building houses for 20 years, and I've never seen the kind of inflation we've had in the last six to eight months."

China, which has virtually evolved into a giant construction zone with several dam and highway projects in the works, is one reason why prices have increased for steel and other building materials, economists said.

Booming demand for new houses in the United States, distribution bottlenecks, and higher energy costs are also playing a role in higher costs for cement and lumber. And while the prices of some items are off from recent peaks, many others are still well above last year's levels, said John Anton, an analyst with Global Insight, a forecasting firm.

From May 2003 to May 2004, plywood costs rose 54.3 percent, and steel nails and spikes rose 15.5 percent from March 2003 to March 2004, according to the US Bureau of Labor Statistics. But in the last six to eight months, Spier has seen even more dramatic fluctuations when he goes to buy some of his supplies at Cape Cod Lumber Co. in Abington.

Butch Thurston, Cape Cod Lumber's vice president of sales, can tick off recent price hikes. One variety of coil nail, which cost $60.55 when bought in bulk in January, has shot up to $86.32. A variety of stick nail, which sold in bulk for $134.05 in November, is selling for $173.58, he said.

''There are particular nails the supplier can't get," Thurston added. ''Getting the product is half the battle."

Spier estimated that the increases in building materials can add at least $30,000 to the final cost of the $800,000 to $1.2 million homes that he builds.

In a report titled ''Builders Face Inflation," Celia Chen, the director of housing economics at the forecasting firm Economy.com, noted that China's economy ''is devouring steel, and helping to send steel prices soaring. A cement shortage is also developing, as a busy China trade is tying up the cement that is normally imported to the US."

Attempts to reach the Chinese embassy in Washington, D.C., for comment were unsuccessful. But US economists said the Chinese economy is expanding at a furious pace.

In a recent report, Anton wrote: ''Ten years ago, China was a fringe player in the global steel market. Now, it is by far the largest player, producing over 20 percent of the world's steel and consuming an even higher percentage."

The added consumption of steel has been felt all over the world.

''Prices just exploded" late last year and in the early part of the year, he said in an interview.

As China surges, the segment of the US economy that uses building materials has enjoyed robust health. Historically low mortgage rates of recent years have spurred demand. In May, the number of building permits issued nationwide was projected to be a seasonally adjusted annual rate of 2 million units, the US Commerce Department said. Mortgage rates are expected to rise, making homes more expensive, taking some steam out of the demand and causing the price of building materials eventually to fall, economists said.

For the moment, demand for cement is still strong in the Northeast and the Sun Belt, said Ed Sullivan, chief economist for the Portland Cement Association. The shortage, he said, is ''a regional problem, not a national phenomenon."

It's not just construction companies that have seen higher prices; US consumers have seen them, too.

Citing competitive reasons, Lowe's Cos. Inc., a North Carolina-based chain with just under 1,000 US home-improvement stores, declined to break out price changes on a market basket of popular items but acknowledged that prices have been fluctuating.

''Steel has stabilized in the past several weeks, but we can't speculate on what may happen with prices for the remainder of the year," Lowe's spokeswoman Chris Ahearn wrote in an e-mail. ''Lumber and building materials have seen price deflation over the past three weeks, but lumber costs are higher than this time last year."

Lumber prices have eased as manufacturers ramped up production, said Rita Ferris, vice president of Northeastern Retail Lumber Association, which represents about 1,200 independent stores.

One result is that the current composite price per thousand board feet of framing lumber is $405, above the $317 price of a year ago but below a mid-May peak of $463, added Shawn Church, editor of Random Lengths, a publication that tracks North American forestry products. It's domestic demand, not China, that's affecting lumber prices, he said.

''We are in the midst of the best home-building market we've ever had," Church said.

Back in Foxborough, homebuilder Spier sees little relief in sight. Because of high energy costs, some suppliers are charging more for deliveries.

''It's creeping through every part of the industry," he said of high prices. ''We seem to be hit from every direction."

Chris Reidy can be reached at reidy@globe.com.