Will Construction Costs Go Down in 2023?
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Before we look to the future, let’s take a step back and look at how prices came to be where they are now. As you probably already know, Covid-19 and its large spread economic and political impacts have been the biggest cause of construction price increases & volatility.
While no one element is the single driver, the following factors have had a varying impact on construction costs over the past three years:
During the pandemic, many countries imposed increased tariffs on the export of goods and services, which greatly impacted the global supply chain. For example, additional taxes on steel and other common construction materials added to already rising prices.
2. SUPPLY CHAIN ISSUES
Over the past three years, China and many European countries either shut down factories or delayed material production. Many US companies that relied on Chinese or European manufactured products struggled to receive their orders on time or at all. As a result, many custom home builders failed to complete projects or had to use completely different materials.
3. SCHEDULING DELAYS
Due to long lead times and supply chain issues for materials, many builders had to deal with major scheduling delays. These delays created a ripple effect, making it difficult for builders to maintain, move forward, or finish construction projects.
4. LABOR SHORTAGES
While the construction industry was already experiencing a shortage of skilled workers pre-pandemic, the problem has been exacerbated over the past three years. Most construction workers in the United States fall between the ages of 40 – 60, and the pandemic spurred a major increase in layoffs, early retirements, industry changes, and leaves of absence.
Over the past year alone, inflation has skyrocketed, reaching a forty-year high. The construction industry is no exception – everything from raw materials, fuel, labor, building supplies, and transportation has seen a significant price increase. Not to mention the rising interest rates as a response to the high inflation, straining pockets even further.
6. RISING ENERGY PRICES
In addition to material shortages, project delays, and rising inflation, we’ve also seen a sharp rise in fuel and electricity prices globally, further increasing home building and construction costs.
It’s important to note that costs for construction materials do not always move in the same direction. For example, the price of lumber can decrease while the price of fuel increases.
So now that we know why construction costs have been so high over the past three years, where have they fallen lately? Most of the world is experiencing near-normal life again, but unfortunately, construction costs in 2022 have remained higher than they were pre-pandemic.
According to CBRE Construction Cost Index, there was an expected 14.1% year increase in construction labor and material costs over the year 2022. While this is half the percentage over the previous two years, it’s safe to say that construction costs and building materials were still very expensive this year.
Prices remained high due to many of the same reasons previously discussed: Widespread labor shortages, supply chain issues, production delays, and inflation. You can point to the combination of these factors to explain why construction costs have failed to fall significantly and why some homeowners were still hesitant to build.
The good news is that while the prices remained high, according to the National Association of Home Builders (NAHB) and the CBRE, the price increase percentage decreased and then stabilized during the second half of 2022.
Will Construction Costs Go Down in 2023? While the last few years have set record-high construction costs and brought an excess of problems for builders, 2023 is shaping up to be different.
According to the CBRE and National Association of Homebuilders (NAHB), construction cost increases will return to the historical average of 2% and 4% in 2023. It is also expected that inflation will begin to taper by the beginning of next year and return to near-normal levels by June 2023.
Some causes for the predicted price decreases are supply chain stabilization, ease in global restrictions, rising interest rates resulting in slower cost increases, and improving the flow of materials. We see the most significant price decrease for lumber and steel due to the housing slowdown and an excess material supply.
As stability returns to the housing market and the construction industry, custom home-building companies are finding their footing again. Building materials and construction costs are trending towards being less expensive than 3, 2, and 1 years ago. There are fewer global imports and export restrictions, and the supply chain bottlenecks are improving. Rising interest rates are curbing prices from increasing, and builders have more experience pivoting when problems arise.
Overall, 2023 will be a much better time to build a custom home due to decreased prices, more material availability, and an increasingly stable market.
At Eakman Construction, we understand that both planning for and building a custom home is a lengthy process, especially with the uncertainty of the future economy.
However, with construction costs finally decreasing and set to return to normal levels in 2023, now is a much better time to build a custom home than the past three years. You’ll have a much easier time securing your labor and materials, and the entire project will be more cost-effective. Additionally, interest rates are high, so you’ll have the opportunity to refinance the cost of your home in the near future.
To ensure you get the best market costs, we encourage our clients to act as soon as possible. With the natural highs and lows of the building market, we do not know how long construction costs will remain low. If you begin the process now, you have a much better chance of building your custom home while prices are still low. Furthermore, while your short-term costs have the potential to fluctuate, your Seattle custom home will only continue to increase in value year after year. We say that if you want to build a custom home and are able to do so, there is no better time to start than today!
If you are waiting for the “perfect” time to build a home… there may very likely never be one. If the past couple of years has shown us anything, unforeseen events can always arise, and we can never really control what’s to come.
At the end of the day, deciding when to build your custom home comes down to your financial situation, commitment level, and personal risk assessment.
Build Your Seattle Custom Home With Eakman Construction
In these uncertain times, it has never been more important to partner with the right custom home-building company. You need someone in whom you can put your complete trust in to guide you through the building process and provide expert advice. As one of Seattle’s leading custom home builders, Eakman Construction is here to take you on this journey. We build custom homes that provide our clients and their families unparalleled value and security for decades to come.
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