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Based on market research by MCP Group 6/20/2022
Please see our summary analysis at the end of this information for our recommendations on moving forward with your project successfully.
Construction Material Outlook – Q3 2022
Lumber Market: COSTS TRENDING
During the 2nd Quarter of 2022 with interest rates rising and the housing market declining, we have seen the demand for lumber start to cool down. Q1 of 2022 saw lumber prices well above the $1,000/MBF mark. Late in Q2, we are now seeing lumber prices well below $600/MBF, which is almost back to pre-COVID levels.
What does the future hold for lumber prices? With mortgage rates soaring, many believe the worst of the “wild lumber ride” is over and prices will continue to slowly decline over the last two quarters of 2022, bottoming out around the $450/MBF mark. It should be noted that even though lumber is trading much lower in Q2, it will take time (maybe a couple of months) before the end users see the savings.
We expect lumber prices to move gradually down through the 2nd half of 2022 and the hope would be that by the end of the year lumber is back to trading at pre-Covid levels.
Plumbing/HVAC Market: COSTS TRENDING
Electrical material prices continued to increase during Q2, with overall increases of 10% -15% in one quarter. The Ukrainian conflict has played a significant role in aluminum conduit and wire prices with Russia being one of the world’s largest aluminum producers. Electrical panel shortages and extended lead times are also a result of the aluminum shortage. Circuit breaker costs and lead times are a result of a shortage of insulating resin dating back to the shutdown of Texas producers due to an ice storm in February of 2021. Current switchgear lead times are 6 -12 months depending on size and complexity of projects. Early bid packages and early ordering of electrical components are now a must to keep project delays from occurring.
Electrical: COSTS TRENDING
Aluminum conduit and wire manufacturers announced cost increases of 12% in February with additional increases expected in Q2. With Russia being one of the world’s largest aluminum producers, the future is very uncertain for aluminum conduit and wire pricing. Copper wire has seen significant increases in the past year, and future increases in 2022 are to be expected as demand continues to increase. Lighting manufacturers announced another round of price increases in early March of 10% -15% due to inflationary issues, transportation costs and global supply chain disruptions.
Structural/Miscellaneous Steel and Metal Studs: COSTS TRENDING
Russia’s invasion of Ukraine in late February caused steel prices to swing quickly upwards in late Q1 due to supply concerns. Since April, steel prices have slowly been declining with global demand dropping. The forecast moving forward is for steel prices to stay relatively stable in Q3 & Q4, but there is no certainty at this point. Bar Joist lead times remain extreme and the use of wide flange beams and light gauge joists are becoming more and more common place in lieu of open web bar joists.
Asphalt: COSTS TRENDING
Due to recent spikes in crude oil prices asphalt prices are up 40% since the beginning of the year. It’s worth noting that when crude oil prices increase there is a time gap, typically weeks or even months before seeing the corresponding increase in asphalt. With this in mind, the recent oil increases mean even higher asphalt costs in Q3 of 2022. Relief is not expected until 2023.
Roofing: COSTS TRENDING
Manufacturers announced additional prices in increases of 8% -10% effective in April 2022, and additional price increases are certain. Much like asphalt, most roofing materials require petroleum for production. As petroleum costs continue to rise, roofing materials will follow suit. The roofing industry, like many others also continues to face additional challenges with supply chain disruptions, shipping costs, and labor shortages. Severe storms rolling across many areas of the U.S., causing major roofing damage to many homes and commercial buildings has furthered the issues by increasing the 2022 demand for roofing materials. Cost increases of 10% – 20% are expected in the next 6 months. Relief is not expected until 2023.
Skilled Labor: COSTS TRENDING
The construction industry struggled to find skilled labor prior to the pandemic, but this issue is becoming exponential. To keep up with demand it has been reported that the construction industry will need 2 million more workers in the next 36 months or an additional 55,000 new workers per month. The need for additional construction workforce is leading to higher wages and additional benefits as employers compete for this labor force.
Summary Analysis: Overall Cost Trends
Based on our research and communication with industry partners, construction costs have rose over 30% from early 2020 to early 2022. Cost increases in Q2 of 2022 alone have been in the 8% – 10% range and are expected to be 1% – 2% per month for the remainder of 2022. The one positive note is that the lumber industry appears to have settled down and is expected to stay stable for the next two quarters. Early procurement of Mechanical and Electrical equipment is becoming a must for Owners to start projects on time. This may require paying for and storing materials long before work actually begins. Owners should also make sure that escalation contingencies are being carried in addition to general contingencies to combat constant inflation. At this time, it appears that relief may not be in sight until early 2023.
Open lines of communication between Owners, Designers, and Contractors are essential to successful projects in 2022.
Disclaimer: The information contained in this document is based on general market research and current and past experience in the construction industry and represents estimations and opinions only. Any reliance, action, or inaction based on any of this information is at your own risk and MCP has no responsibility, obligation, or any liability relating thereto.