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Construction Cost Trends—March 2016

Posted: March 7, 2016 | Cost Trends

Source: US Department of Labor, Producer Price Index

Housing is still growing at a pretty good rate. “Millennials” entering the first-time buyers market are helping the industry grow. Housing starts for the past year are over a million, but off considerably from ten years ago. Apartment rates are still rising and the Federal Government is making good on easing lending standards (although not quite aggressively enough). Commercial is still doing well and shows positive signs, and the public sector seems to be maintaining its increases (5%). Overall, housing will be up approximately 10% this year and commercial up about 10%.

Construction Materials

Not much has changed since our last report. Prices are down for almost all construction products. Inflation is still low and economists project at least another several years of flat prices. What’s more, some commodities are way down and show little chance of recovering soon. Copper is off considerably and oil is in freefall. Theses two important items are leading the way for the rest of the pack and until we see some sort of sustained growth, the situation will probably continue.

Asphalt

Since oil is dropping precipitously it makes sense that asphalt is in freefall as well. But we look at these decreases of 30 plus percent in a guarded way. Petroleum is a component of asphalt as well as stone and sand. Maybe we should hedge our bets a bit and wait it out. It remains to be seen what further effect oil’s decline will have on this construction material. The pundits are saying that oil will stay low for the foreseeable future and seek its own level. Asphalt probably will follow suit.

Batt Insulation

The continuing improved housing market does not seem to be affecting the price of insulation as much as we thought it would. Maybe the supply is just now catching up with demand. This is the second year of little change in this material.

Gypsum Board

Since 2012, gypsum wall board took an upward swing and really hasn’t stopped, with an overall increase of 50% since 2012. Now the supply seems to have caught up with demand and gypsum wallboard is trading in a very tight range and shows no gain for the year.

PVC Piping

As with asphalt, we should be aware that PVC piping will continue to fluctuate until we have a stable oil industry. PVC piping is down 3% for the year.

Ductile Iron Pipe

Public spending is down and ductile iron pipe is flat. Overall, steel products are flat this year and this component seems to be following suit. DI pipe should continue on this track until either the price of steel rises or an up-tick in public works spending occurs.

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