Will Construction Material Prices Decrease in 2023?
Saying prices have gotten out of hand is an understatement. I’ll spare you the 2020 recap explaining Covid, the lockdowns, factory layoffs, and historically low interest rates followed by an insane construction boom. If you’re reading this, then you’re probably already familiar with the factors that led us to this point.
The basic principle you need to know is that price is determined by the intersection of supply and demand. One would think that as interest rates climb, labor availability falls (while wages rise), that demand would decrease and therefore, prices would also fall. Surely, there’s a tipping point, right?
Although it’s not all good news, let's take a look at the trends and data!
Labor Cost
https://fred.stlouisfed.org/series/ECICONWAG
As we look at this chart we can see that the price of construction labor has continued to go up and there are no signs of that changing. As labor gets harder and harder to find, workers are demanding higher wages. It’s probably one of the biggest frustrations for construction business owners over the last 3 years.
Lumber Prices
https://fred.stlouisfed.org/series/WPU081
Lumber prices have been absolute chaos. To put this in perspective, my mom built a new house that finished in September of 2020. The builder told her that if they had purchased the same lumber to build her house that September when construction was finished, it would have cost an additional $70k. As prices increased, demand did not seem to slow down. Flash forward to 2023 and lumber prices are near pre pandemic levels, but demand is still higher. Lumber economist, Paul Jannke, expects demand to decrease by 7% in 2023.
Nails
https://fred.stlouisfed.org/series/WPU108812
There are 3 major issues for volatility in nail prices. Costs associated with manufacturing nails are up 30-40%, shipping container prices from Europe and Asia are almost double from pre-covid levels and the war between Russia and Ukraine.
In 2020, 1.25” coil nails were around $25 per box at Home Depot. Today, they’re currently at $60. We’re starting to see a fall in price, but they’ll remain volatile due to shipping prices and foreign affairs.
Sheetrock
https://fred.stlouisfed.org/series/PCU3274203274201
Raw materials for drywall are also deeply affected by the war between Russia and Ukraine. Prices have remained stagnant this year, but could see another increase.
Concrete
https://fred.stlouisfed.org/series/PCU32733273
Concrete prices are up 15% from last year. Although demand is expected to ease, prices continue to creep up. High prices are significantly due to manufacturing costs. Manufacturing concrete is very energy intensive and incurs high transportation costs. Concrete is also extremely heavy and takes up a lot of space, so it’s typically produced at the local level and doesn’t have the same volatility that you see with steel or lumber.
Analysts expect we could start to see a decrease in price over summer though.
PVC Pipe
https://fred.stlouisfed.org/series/PCU32612232612213
PVC is expected to fall in upcoming months, due to a slow down in residential new construction. Home buyers are waiting for better prices to get into the market, so demand for pvc has fallen.
So Will Prices Go Down in 2023?
It’s clear that some materials like lumber have gone down and might continue to go down. There’s definitely positive speculation that other material prices will go down, but we’re at a wait and see point. Some of the problems with forecasting for 2023 are all of the looming uncertainties we face today like political tension with China, inflation, high interest rates, recession and the war between Russia and Ukraine. Ultimately, the combination of rising interest rates and high prices should have an impact on the demand curve and we should see some decreases this year.
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