Pointers at Glance
- Construction input prices fell slightly in September, though the wholesale prices businesses receive for products increased more than expected.
- According to an Associated Builders and Contractors analysis of producer price index data, costs for construction materials fell 0.1%. But the overall PPI, which measures wholesale prices businesses receive for their products, increased by 0.4% in September, double the 0.2% analysts were anticipating.
While any fall in construction material prices is a piece of good news for contractors in 2022, and September marked the third consecutive monthly dip, nonresidential construction input prices are still high by 15.9% from a year ago and 40.8% since the beginning of the pandemic, with natural gas and unprocessed energy seeing triple-digit gains.
Roofing products continue to see high costs, up 15.3% from a year ago; despite falling from their highs, they still cost 14.5% more than they did in 2021.
The impacts of increasing costs and rates have already put the brakes on the residential homebuilding market.
Basu said there is mounting evidence that malaise could spread to other construction areas in the future. He noted that the elevated inflation and interest rate increases have undone momentum in America’s homebuilding industry and threatened the entire global economy. It is terrible news for the heavily financed real estate and construction segments.
Indeed, other economists sounded same kind of warnings for the broader real estate sector in light of the recent PPI numbers.
Xander Snyder, a senior economist at Santa Ana, California-based First American Financial Corporation, said in an email that the higher construction input prices make fewer development projects profitable for builders and investors. It is exacerbated by increasing interest rates, which further squeeze investors’ potential margins with higher financing costs. This combination is making it more challenging to start new construction projects.
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