Based on market research by MCP Group 10/01/2021
Please see our summary analysis at the end of this information for our recommendations on moving forward with your project successfully.
Construction Material Outlook – Q4 2021
Lumber Market: COSTS TRENDING
The cost of lumber is currently trading at $650/1000 BF which is increased from last month’s price of $500/1000 BF, but still well below the high of $1,600/1000 BF in May of 2021. These price declines are finally starting to hit the consumer as yards are moving through the lumber purchased at the higher prices earlier in the year. This high-priced lumber needs time to filter through the construction industry before we see large declines in pricing at our level. We expect consumer prices to continue to decline in the next 2-3 months. It should also be noted these price declines continue to primarily impact dimensional lumber, but we are starting to see sheet-goods and timber-stand materials trend down. Wood frame construction is still expected to see relief Q4 of 2021 or Q1 of 2022.
Plumbing/HVAC Market: COSTS TRENDING
These materials have continued to increase approximately 5% since early September. Prices are expected to stay relatively flat during the 4th quarter, but no declines are expected until after the first of the year. As reported last month, manufacturers and mills that provide plumbing material are still playing catch-up from being closed during the pandemic, with high demand for these materials not slowing down. Hot-Rolled Metal Coil has escalated by 85%, copper by 75%, steel pipe by 145%, and poly products (PVC and Pex) 165% in the last year. Covid-19 has had a major role in this escalation which was further escalated by the February 2021 ice storms in Texas (critically damaging the largest polymer facility in the US). Additional production capacity of these materials is expected to come online late this year, but many predictions say it will be Q1-Q2 of 2022 before prices come down significantly.
Electrical: COSTS TRENDING
These materials are expected to continue to increase through the end of the year, but the increases are expected to be more gradual than the first 3 Quarters of 2021. As reported last month - much like the Plumbing/HVAC market, steel, copper, PVC, and resin, which are all critical to electrical materials are significantly increased. For instance, the conduit has increased 65%, copper wire 80%, and light fixtures 65% in the last 7 months alone.
Again, production capacity is expected to increase significantly in the coming months, but these costs are not predicted to relax until Q1 or Q2 of 2022.
Structural/Miscellaneous Steel and Metal Studs: COSTS TRENDING
September marked the eighth-straight month in double digit price increases in steel material with sharper increases expected in Q4. As reported last month - This is primarily due to steel mills shutting down in early 2020 in fear a deep recession was coming on the heels of Covid. The drop-off in demand did not last long and a quick rebound in the iron ore market caught the steel mills by surprise. Currently, steel prices are continuing to soar, with relief not expected until Q3 or Q4 2022. Lead times on these materials continue to increase dramatically. Bar Joist lead times have gone from 5 months in early September to 7 months in early October. We are suggesting projects utilizing steel frame construction entertain the idea of using wide flange beams in lieu of bar joists, as the cost vs. time benefit may make sense on many time-sensitive projects.
Asphalt: COSTS TRENDING
The cost of asphalt has seen slight relief with a 2% decrease since early September. Overall increase is still at 28% since the beginning of the year. Historically asphalt (which follows crude oil) prices peak in the summer and decline toward Q1 of the following year. We expect to see this trend continue in 2021 into 2022. Expect relief Q1 of 2022.
Roofing: COSTS TRENDING
Roofing costs across the board have increased 5-7% in the last month. Metal roofing materials have seen increases of 110% or more, and membrane roofing materials, in general, have increased 20% - 25% in the past year. As reported last month - extreme lead times continue (4 -6 months), especially with membrane products and roof insulation. Covid induced lockdowns halted the buying and manufacturing processes for several months, while demand for roofing did not slow down. The Texas freeze, blockage of the Suez Canal, and the ongoing trade war with China also contributed to this shortage. Relief in prices or lead times is not expected anytime soon. Expect relief in Q2 of 2022.
Appliances: COSTS TRENDING
The cost of appliances has seen no significant increase the past month but have seen an overall increase of 20% - 25% in the past year, and lead times continue to be extreme (6 -8 months). The prediction for appliance production to catch up with demand is not expected until Q3 or Q4 of 2022.
Summary Analysis: Overall Cost Trends
Based on our research and communication with industry partners, most costs are still trending higher as we enter Q4, 2021. It appears that many will start to flatten into Q4 and Q1 2022.
If it is your expectation to start a project in Q2 of next year, as an example, it is our recommendation to start your design and due diligence process now. This will give our team time to work on the cost and logistics issues and expect some costs to decrease in this time frame.
If you plan to start a project before that timeframe, it is important to understand the potential cost-related challenges early (now) and we can help make value-added suggestions to alleviate the budget pressures. We have been successful with this to date and fully expect that we can help you move forward.
It is also worth noting that inflation is predicted to increase more rapidly than originally expected in Q4, 2021. Members of the Fed’s rate-setting committee are predicting an annual inflation rate of 4.2% by the end of the year, up from 3.4% which was forecasted in June. With this in mind, clients should weigh the potential interest rate increases vs. the current material cost as they evaluate timing of project starts.
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.