Given the financial difficulties that commercial real estate construction has experienced, some promises of lower prices for the foreseeable future are welcome. That’s what John Burns Real Estate Consulting offers in a blog post.
“While housing starts have been steadily declining since February, our recent survey of over 500 renovators also shows a slight decline in upcoming renovations,” the post read. “This means that demand for building materials will almost certainly decline next year as supply finally catches up with demand.”
The results should be a stabilization in the prices of building materials and the availability of labour, at least in the trades involved in the construction of new houses and renovations.
Specifically, the company said a third of building materials dealers said home improvement business traffic was strong in July, down from 61% in February. And 60% of renovators say delivery times are improving for at least some materials.
Maybe cabin fever is finally easing, but from what John Burns is hearing, financing is reducing the availability of cash for consumers. Financing for the home equity line of credit has become increasingly tight, according to several renovators. This hinders the financing of renovation projects.
There is still a backlog of projects, so the demand for building materials will continue, and “we also remain very optimistic about long-term renovation demand, due to the number of houses entering the first years of renovation, unprecedented levels of home equity, and homeowners deciding to upgrade their current home instead of buying a new one. »
In the shorter term, there are still a lot of price issues for construction. The latest producer price indices from the Bureau of Labor Statistics are out, covering the month of August.
In July 2022, the year-over-year change in materials and components for construction, excluding capital investment, labor and imports, was 14.8%. The growth rate of the increase had dropped, but that has changed.
The August figures show that combined materials and components in construction grew 15.2% year-over-year. Materials growth fell to 12.7%, but components grew to 17.1%. Rates, while high, are significantly lower than at the start of the year.
But the problem is that the increases are cumulative. Reaching a more sustainable level of spending will take longer, with prices needing to actually start falling back to pre-pandemic momentum.