Construction Costs Are Dropping
The current state of the construction industry and slow real estate sales has finally slowed the demand of building materials to the point where prices are dropping. Between January 2007 and January 2008, framing lumber fell 15.6 percent, insulation 3.6 percent, and wallboard a whopping 22 percent. Some markets have seen even sharper drops in material costs.
What does this mean for you? Well combine the dropping material costs with slower demand on construction crews and still historically low interest rates and now is a great time to build a new home, remodel and existing one or add that addition you’ve been putting off for years.
A couple of years ago you would have had a very hard time getting contractors to return your call. Now if you call a contractor he or she is likely to show up at your door step the same day to discuss your project. In addition the slow down in construction has weeded out quite a few of the smaller less established contractors. Contractors are sharpening their pencils and keeping prices very competitive to keep enough work for their crews.
The only fly in the ointment that I see is the ridiculous fuel costs. Those costs will be passed on to the customer which will ultimately offset some of the savings due to lower material costs. Even so it’s a great time to build your next project before the market stabilizes and contractors get busy again.
Todd,
You bring up some excellent points. I have noticed a very slight drop in material costs. Compared to everything else going up, it seems construction stuff is getting cheaper. The one problem I am having selling solar equipment is financing. The banks are having problems with issuing new home equity loans for home improvement projects because they don’t know where the real estate market will settle out. I have lost 2 jobs because the home owner could not secure a home equity loan.
All in all, the high price of fuel has generated a lot of interest in renewables, which is good, at least for me.
We are seeing similar problems at work. The banks are taking a very hard look to things that I’d consider nice to haves vs. must haves. A local bank called me recently to ask if I thought geothermal heat was a viable option. They were nervous about lending money on a new technology. As far as I can see the banks will come around when they finally see how many people are interested in alternative energy supplies.
Todd,
Curious where you got the percentage figures from.
According to Ken Simonson, an economist with the trade association Associated General Contractors, the price of construction materials will rise by 6 per cent to 8 per cent in the United States in 2008. The only exception is gypsum, used in wallboard, will fall in price, by between 10 percent and 20 percent.
Ron,
These figures are based on the prices we’ve been paying here in NH over the last year. Drywall (gypsum) has fallen significantly and I think it will continue down a bit more.
Todd,
The only construction material that has dropped significantly in my area is lumber.
No other costs, including labor, have dropped significantly and costs on many fixtures have gone up.
In remodeling in particular very little of the typical projects costs are associated with lumber and therefore the prices remain stable.
I really don’t mean to get argumentative with you but I must say that I am really weary of hearing this type of information that is basically telling consumers they should be seeing great cost savings in remodeling because of lower materials and labor costs. In reality there is no significant cost difference for me as a general remodeling contractor, and the only place for those supposed savings to come from are my margins, and while I have no qualms about giving up my average 5 to 6% net profit in this economy, everything else is coming out of revenues that keep my business running and food on my family’s table.
@ Owen – No offense taken. Prices are certainly not dropping as quick as one would think. Also, that article was written in May of 2008 when there were some decent material price drops. I will say that we’ve seen some decent drops in labor from sub-contractors this year. Many of those drops in pricing are due to the lack of work for those trades. Thanks for stopping by.