Lower Building Materials Prices Coming Says John Burns

Given the cost pains that commercial real estate construction has seen, some promise of lower prices in the foreseeable future are welcome. That’s what John Burns Real Estate Consulting is suggesting in a blog post.

“While housing starts have been steadily declining since February, our recent survey of more than 500 remodelers shows a slight remodeling decline ahead too,” the post read. “This means that building material demand will almost certainly decline next year at the same time that supply is finally catching up to demand.”

The results should be stabilization of building materials prices and labor availability, at least in the trades involved in new home and remodeling construction.

More specifically, the firm said that a third of building materials dealers said that remodeling company traffic was strong in July, down from 61% in February. And 60% of remodelers say that lead times are improving for at least some materials.

Perhaps cabin fever is finally easing, but from what John Burns is hearing, financing is tamping down the availability of money to consumers. Home equity line of credit funding has gotten increasingly tight, according to multiple remodelers. That’s putting the brakes on funding remodeling projects.

There is still a backlog of projects, so demand for building materials will continue, and “we also remain very bullish on long-term remodeling demand, due to the number of homes entering the prime remodel years, all-time high levels of home equity, and homeowners deciding to upgrade their current home instead buying new.”

In the shorter term, there’s still a lot of pricing pain for construction. The newest producer price indexes from the Bureau of Labor Statistics are out, covering 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 increase had dropped, but that has changed.

The August figures show that combined materials and components in construction were up 15.2% year over year. The materials growth was down to 12.7%, but components hit 17.1%. The rates, even while high, are significantly lower than earlier in the year.

But the problem is that the increases are cumulative. Getting to a more sustainable level of expense will take more time, with pricing having to actually start coming down to return toward pre-pandemic dynamics.