Construction Material Prices Bottom Out 4Q09

Submitted by Allie_Bell on Wed, 12/23/2009 - 4:40pm

Construction Prices 4Q09 National average construction costs experienced a decline for the fourth consecutive quarter, according to Rider Levett Bucknall's cost data for 4Q09.

Compared to the considerable drop that occurred over 1Q09, the diminished rate of decline experienced over the most recent two quarters suggests that builders are unlikely to make additional deep cuts to their already tightened margins — even as workload projections remain pessimistic.

According to RBL's quarterly report forecast for 2010, they expect construction inflation to be essentially flat for as long as perceptions about the amount of construction work available remain bleak and inflation in the broader economy remains subdued.

"Constructors will be eagerly monitoring for a sustained uptick in design firms' billings as a potential herald of recovery in construction volumes," RBL states.

CoStar reported that the November 2009 PPI report from the Bureau of Labor Statistics showed sharp increases in the prices of key materials such as diesel, copper and brass mill shapes. The overall index for inputs to construction industries, a weighted average of all materials used by contractors, rose 0.6% in November compared with the previous month after falling 2.3% over the past 12 months.

"All of these items had dropped in price compared to a year ago, but the declines have bottomed out or reversed," notes Ken Simonson, chief economist for the Associated General Contractors of America (AGC). "More increases are likely soon, as the dollar loses value and construction picks up in key foreign markets."

Construction analysts have speculated that lower prices would eventually prompt more projects to move forward, helping fuel the recovery of the nonresidential sector, says Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. Unfortunately, rising material prices are instead likely to delay the segment's ultimate recovery.

"Public agencies and private owners contemplating construction projects should treat today's figures as a warning shot," Simonson says. "Prices for many materials have stopped falling and are poised for increases."