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Materials Prices Going ... Down?

21 September, 2022

It could be good news for painters, especially those involved in new construction — prices seem to be going down. According to an article published by Construction Dive, nonresidential construction materials have, at this point, peaked in June, and have decreased for the second consecutive month. For example, there was more than a 5% decrease in the cost of steel mill products and a more than 3% decrease in the cost of softwood lumber.

The article quoted Anirban Basu, economist for Associated Builders and Contractors, as stating this points to evidence that inflation is edging lower than it was earlier in the year. Part two of Basu’s comments, however, warn contractors not to become complacent, noting that COVID lockdowns in China and energy shortages in Europe could still impact the cost of materials in North America. He noted that decreased prices don’t necessarily mean project owners are feeling upbeat about paying contractors more for a project, citing continued fears of a recession and increased borrowing costs. He advises contractor to stay on top of their numbers and cut costs as they can.

Materials prices decrease, so do home sales
An article published by Builder Magazine has the same tempered optimism. The article states that lumber prices fell on average 4% to $465 per thousand board feet, then quotes Goldman Sachs as saying that this may be indicative of a housing market slowdown that will last longer than was previously expected. The bank predicted existing home sales to remain “flat” while new home sales would decline by 12 percent. This might be good news for home buyers and contractors whose living depends on them; the bank predicted that the lower housing demand, coupled with the ensuing higher housing supply, will put the brakes on what’s been a hefty increase in housing prices.

Higher interest rates mean lower sales volume
If this all seems confusing, well… it might be because it is; even industry observers are finding the current market hard to understand. Barron's reports that while rents and housing prices have increased, the construction industry is slowing down. Supply chain issues are causing the costs to rise faster than the prices, pushing that construction industry profits uncomfortably low. The article pins much of this on the Fed’s decision to raise interest rates, noting that people are choosing not to move because they’d rather stay where they are and keep their low interest rates. It’s difficult to justify a move if your interest rate doesn’t allow you to buy a better house. Adjusted for inflation, interest rates are now the highest they’ve been since 2008, states the article, pricing many buyers — including potential first time buyers — out of the market. According to the article, existing home sales fell 20.2% from July 2021 to July 2022, while as of early September, mortgage applications for purchase were down 23%.

Maybe we’re not headed for a recession after all
There’s good news, however, according to an article written by Isaac Barzso for Levelset. Reporting on a Levelset Panel held in mid-September, Barszo quotes Ken Simonson, chief economist at Associated General Contractors, as saying “I don’t think that we’re in recession [now] … and I think that we’ll escape without a recession.” Simonson added that he expects a slowdown in construction materials costs, but he foresees — and this will surprise exactly no one — that contractors will have trouble finding labor and then getting that labor skilled up to perform the necessary work. New federal policy, which focuses on American-made building materials, may make it harder for builders to start new projects, he added.
You can see the entire discussion at  Building Material Prices Update: Ask the Experts - YouTube.

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