Rapidly rising interest rates and increasing construction costs have decreased builder confidence. With construction costs at an all-time high, you may be thinking it’s not the right time to move forward with new development deals, but that may be a mistake! Great opportunities may lay ahead for developers who are ready. Read on to find out why.
Building materials prices have risen 35.6% since the start of the pandemic. Building material costs are up 19% from a year ago; in less than three months, mortgage rates have surged to a 12-year high.1
With all this going on, we are beginning to see construction slow. After all, it is hard to get a proforma to the pencil with never-before-seen high construction costs.
However, this slowdown may be exactly what the industry needs to get pricing sustainable again. A slowdown will mean that supply chains can catch up. We already see significant drops in lumber futures.
Lumber prices fell 7% on June 1 to a new 2022 low of $604.50 per thousand board feet, and prices could continue to drop if the market keeps cooling. 
When supply chains catch up (increasing supply) and builders/subcontractor pipelines slow, construction pricing will inevitably drop. So the question is: WHO WILL BE READY TO TAKE ADVANTAGE OF LOWER COSTS?!
Project development and design takes 8-12 months, so those developers preparing deals and plans and getting permits in hand are the ones who will take advantage of this potential price dip. Many of our clients are re-entering development solely to be ready for what they suspect will be a lucrative opportunity within the next 12 months.
Demand remains strong across the industry in the second quarter of 2022, and the current pipeline suggests similar strength until at least the third quarter. The downward revision to this growth forecast stems from concern around the price pressures arising from both global and local issues.
We know we are in volatile times, where supply chain issues and labor shortages are frustrating. Building materials costs have changed constantly, and rates keep increasing. Still, the market needs you to build!
Construction material prices are dropping, but people still are not building. Nearly every city in America needs workforce/market-rate apartments. The only reason projects are on hold is because of construction cost. BASE4 has a product-centered approach using 100% Revit design to help developers and general contractors rethink traditional building methods by infusing innovative technology, forward-thinking design, and offsite manufacturing principles to build projects CHEAPER and FASTER!
BASE4: The GO-TO Firm for Optimal Design
We know we are in volatile times, where supply chain issues…
We perform all services in-house, including architecture, structural engineering, MEP engineering, interior design, 3D BIM visualization, and construction administration. The BASE4 team has worked around the globe, providing a wide range of expertise in quality standards, specifications, and international best practices for design.
Thank you,
Blair Hildahl
BASE4 Principal
608.304.5228
BlairH@base-4.com
Source:
1. https://www.nahb.org/blog/2022/05/building-materials-up-more-than-19-percent-year-over-year
