Construction Material Pricing

Construction material cost soon can have a huge effect on construction pricing for contractors, subs, and owners. From material costs to equipment fees, price changes can occur rapidly. To avoid surprises, it’s very important that construction companies stay on top of any material price changes or forecasts. Or else, your profit margins can be minimized or even disappears.

Prices paid for building materials increased across the board in February. The indexes for softwood lumber (+5.6%), gypsum products (+4.2%), OSB (+3.1%), ready-mix concrete (+0.4%), and inputs to residential construction less labor (+1.0%) all increased, according to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics.

In the last two years, we have seen a steady increase in the cost of many different materials. The biggest increases were seen in concrete block, ready-mix concrete, precast products, flat glass, and gypsum. The percentage increase in softwood lumber prices was the biggest since 2012 according to PPI historical data. The last time prices rose nearly this sharply was February 2017 (+4.7%), which marked the first month of price increases after the last softwood lumber agreement expired.

To optimize profits and prepare for the future market, it is important that you look forward. Predicting future trends will help your business stay on top of any changes.

BLS also reported that prices paid for gypsum products rose 4.2% (seasonally adjusted) in February, the largest increase since April 2016. Although prices increased substantially in February 2017 as well (+3.2%), the average monthly increase during the intervening 11 months was 0.3%. During that period, prices advanced more than 1% only once (+1.6% in June 2017).

Overall, construction costs are expected to continue to grow about 2-3% through the end of 2017. Most of these increased costs will be due to rising labor wages. With the plethora of labor shortages within the construction industry, higher wages will help attract new workers. Material costs are also expected to grow about 2-3%. Some of the most significant material costs increases are within softwood products, with huge jumps in softwood lumber.

While some costs are expected to rise, there are also many materials that are expected to stay more stagnant. While gypsum and ready-mix concrete prices have risen, they are small increases at around 0.2%. In the past, gypsum experienced steep price hikes at the beginning of each year in 2012, 2013, and 2014. Since then, gypsum has experienced much smaller increases indicating better price stability. Equipment is also expected to remain flat with very little growth predicted.

Besides normal inflation, there are many reasons for price increases. The biggest reason for increases in softwood products is because of the current dispute between the U.S. and Canada. This dispute threatens prices because of higher tariffs that can be imposed by Canada.

Trump has also been seen as a trigger for price hikes. One of Trumps biggest platforms was to keep business in America. This means limiting imports which have caused steel mills to increase prices.

These reasons are only a few of the several factors that have led to construction cost increases. While you can’t change the market, staying up-to-date on construction news will keep you informed and prepared for whatever the industry throws at you.