Construction Material Outlook – Q4 2022

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Based on market research by MCP Group 10/25/2022

Please see our summary analysis at the end of this information for our recommendations on moving forward with your project successfully.

Construction Material Outlook – Q4 2022

Green Down

Lumber prices have plunged in the 3rd quarter and hit a new low for 2022. Prices are down 47% and are off 65% from 2021 high. It’s just been reported that lumber prices are back to their pre-pandemic pricing. Plus, as the slowdown in the housing market continues and inventories increase, it is not expected for lumber pricing to climb. However, we could see some fluctuation following a steep year-long decline. It will take a significant rebound in home building to see drastic lumber pricing increases. This is not likely with the Federal Reserve raising interest rates and making it harder to finance owning/building new homes. 

Yellow Up

Plumbing costs are anticipated to remain high due to continued challenges in the supply chain through the end of 2022.Until demand for materials goes down and supply chain issues get resolved, not much is expected to change with plumbing materials. Increased tariffs, shipping, and high demand will keep plumbing numbers consistent.  

The war in Ukraine is keeping HVAC pricing high due to materials being sourced in that region. Commercial equipment is expected to remain high; however, as residential demand lowers, there might be some relief in pricing and delivery times. 

Yellow Up

Price increases for electrical components are expected to cool through Quarter 4. The lead time for receiving components, however, remains long and isn’t expected to improve through the remainder of 2022. Lead times have increased by 85% since early 2020, mostly due to labor shortages at the manufacturing and distribution levels. The chip shortages experienced across many industries also affected the amount of components, so there’s a shortage on top of staggering lead times.  

Gren Up and Down
Structural/Miscellaneous Steel and Metal Studs: COSTS TRENDING

Steel prices have been encouraging this quarter; they’re down 60% from this time last year. This followed a historic run in late 2021 and early 2022, and the Russian-Ukraine conflict caused increases in Quarter 2, but it’s since eased. Hot rolled coil (HRC) steel is below $800 per short ton as of last month, which is at its lowest since December 2020. This seems to be due to economic uncertainty coupled with global inventories. 

Relief is expected to continue through Quarter 1, if not beyond. 

Gren Up and Down

As asphalt costs are tied so closely to crude oil prices, which have fluctuated the past few months, asphalt could be generally considered to have held a steady average the past quarter. Luckily, crude oil & refined product prices have come down from their highs in April, by around 20%.  

Future cost is always uncertain, but it seems reasonable to expect relief to continue through Q4, 2022 and Q1, 2023. 

Gren Up and Down

Roofing material costs could be considered steady during Q3; a slight dip in cost in July was cancelled out by a slight rise in August. This was a welcome respite from Q2, where large price increases were passed on due to manufacturers’ rising costs. However, the overall cost has risen due to soaring petroleum prices, with roof installations having gone up 15% in price in the past year alone. Labor shortages in the industry abound as well; keeping qualified employees on staff has been a challenge. It’s been necessary for many roofing contractors to pass up desired contracts simply due to not having enough help. 

Roofing costs are not expected to decrease in the near future. There is a yearly increase by manufacturers each spring, which distributors then pass on. Additionally, expect continued delays in receiving roofing materials, as warehouses remain short on labor and are not operating fully. Recent Hurricane Ian is also expected to mean higher demand. 

Relief is expected in Q1, 2023 though costs are likely to rise again as usual in Q2, 2023. 

Gren Up and Down

The timeline for receiving needed appliances remains the same as the rest of 2022; it is still necessary to remain open to other options (regarding styles, colors, or even models), or to expect a wait for exactly what’s wanted, due to lingering production & supply chain issues. Per appliance distributors, ordering a project’s appliances six months in advance (if possible) is advised for timely receipt. This is expected to continue through at least the end of the year, though how far into 2023 this may ease is anyone’s guess.  

However, though procurement may remain slow, there’s been some relief in cost despite inflation. Rising interest rates are slated to cool the housing market and thus slow the rush for appliance purchasing; with less demand, costs should improve or at least remain stable. 

Cost relief should continue through Q4, 2022 and possibly Q1, 2023.  

Yellow Up
Summary Analysis: Overall Cost Trends

Not all is doom and gloom with the construction outlook. Though construction prices are up 15% – 20% from a year ago, pricing is leveling out on some materials, and lead times are starting to slowly return to pre-pandemic levels. If the expected recession takes hold, inventories should be replenished, coupled with less demand; pricing should be expected to drop. Working with the construction project management team to manage lead times and value engineer projects, if possible, with alternative materials will be critical. Communication and collaboration during these challenging times remain vital to the success of construction projects.Owners should also continue to make sure that escalation contingencies are being carried in addition to general contingencies to combat constant inflation. 

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.