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Construction Cost Trends—September 2017

Posted: October 26, 2017 | Cost Trends

BNi Building News Construction Costs 2017 Source: US Department of Labor, Producer Price Index   

Commercial construction is still booming, residential is coming back, but public construction is down. Remembering that housing is approximately 50% of the industry, let’s look closer at the trends. Home prices are still climbing but due more to a lack of inventory than to pent-up demand, as inventory is at a 20-year low, which will ultimately fuel growth in housing construction. The biggest concern right now is that public construction has stalled and infrastructure spending may still be a ways off. Wage increases are now a steady 4-5% with no sign of slowing down; there just aren’t enough tradespeople available. Nevertheless, it’s still a good time to be in the construction industry.

CONSTRUCTION MATERIALS

Most commodities are up, while some commodities (such as wood products, copper and steel) are up significantly. As a whole, materials are 6-7% up for the year. Inflation may be arriving soon, something we should watch for this quarter. In our last edition, we said that oil and gas may be on the move but that seems to have subsided.

CLAY AND CERAMIC

Clay and ceramic products were moving up at a very slow rate of 1%, and now seems to have leveled off. After having been flat to down for six years, clay and ceramic moved up for the last two years, but have now resumed their flat trajectory.

SAND AND GRAVEL

Go figure. We used to think that crushed stone was dependent on the price of fuel, but that no longer appears to be the case. After moderating in 2013 with gains of 1-2%, sand and gravel started to climb upward in 2014 with gains of close to 5%. Last year it looked like the gains would sustain themselves, but they leveled off at 3%. Now sand and gravel seem to be following the fortunes of commercial construction as a whole.

LIMESTONE

Same story, just four years later. After six years of flat prices, limestone moved up with increases of 2-3% in 2013. But since then, limestone has again flattened out and it seems to be developing into an extremely stable component trading in a very tight range.  This component doesn’t seem to follow the fortunes of the industry.

RUBBER AND RUBBER PRODUCTS

After two flat years in 2012-2013, and up and downs to last year, rubber is up slightly for the year – with increases in the 2% range. It’s still hard for us to tie this material to other commodities and it seems to have no relationship with any other construction material.

MILLWORK

With the exception of 3 quarters in late 2013 through early 2014, millwork has been on a steady sustained rise in spite of roller coaster rides in the price of wood products. Following the housing upturn and an up-tick in commercial construction, millwork had been outpacing all of the other construction materials/components, but now seems to be following its own steady path.

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