Construction Costs May Be On Way Down Experts Say
Written by Marilyn Bowden on November 16, 2006
By Marilyn Bowden
Construction costs, escalating at an unprecedented rate for two years, may be starting to come down, according to local industry watchers.
"We believe that because of the surplus on steel and lumber built up by pre-orders from before the slowdown in residential construction, we should see some price reductions at least in those two materials in the near future," said Jose Martinez, president of Adler Group’s president of development. "If petroleum prices stay down, roofing products could also come down."
With demand lower than it’s been in some time, he said, builders could start to see some rollbacks as early as the first quarter of next year.
"If suppliers are stuck with materials," Mr. Martinez said, "vendors will probably be given some incentives to move it."
According to Marketwatch.com, US Steel reported a strong third quarter but also confirmed that "stockpiles at buyers’ US warehouses, which have been growing for months, will likely take a toll on producers’ bottom lines in the fourth quarter."
That would be good news for builders who have seen the cost of materials go up at least 10% annually, Mr. Martinez said. "Certain materials have doubled in price," he said. "Nobody expected that.
"I don’t think we’ll see reductions so deep that condo developers will say, ‘Wow! Now the deal works.’ Where it will have an impact is in the commercial environment — retail, office, light industrial."
Harold Chopp of Chopp Consulting said the cost of construction materials has not dropped significantly but neither are there major increases.
"The cost of materials is rather flat," he said. "Right now, contractors are very busy and staffing their projects with as many people as possible to comply with their timelines, and that’s likely to be the situation for the next year-and-a-half or two years."
"What I have seen is that the escalations of steel and concrete have slowed," said Stuart Sobel, a shareholder with law firm Siegfried Rivera Lerner De La Torre & Sobel. "The escalations are not as whacked as they once were."
As construction costs come down and demand tapers off, he said, the price of residential units will be affected.
"They will go down," Mr. Sobel said, "but more slowly than they went up. This market is impacted less by the economy than others because of the constant increase in population driving demand. So I think it will always do pretty well."
Slightly lower construction costs could make projects such as rental apartment complexes reasonable investments for developers, said Abel Montuori, executive vice president and senior lending officer at US Century Bank.
"Four to six months ago, that was not the case," he said. "It’s been influenced by the drop in the price of petroleum and also the fact that since construction has mellowed out a bit a lot of the contractors and subcontractors are again actively looking for work. That makes some products in real estate accessible again to developers."