We are Tired of Bad News Too!

M.A. Mortenson (a very large construction company) says construction prices increased 19.2% last year. ROMAC (a very large building product supplier in Florida) says that on average, materials for a house from mid-December to mid-January went up 12%. Already subcontractors are telling us that they are booked for the year. Truss suppliers, who traditionally have had 2 to 4 weeks fab and deliver times, are out to October, making projects challenging to start and maintain continuous construction. The price of Ready-mix is up by $10 – $20 a cubic yard in the last couple of months, and drywall has been going up approximately 10% a month. 

I am tired of delivering bad news. Everyone knows prices are going up, but it is shocking the extent they are going up. Our clients seem to be getting numb to increases, and they are no longer even asking what I expect in the future. To their credit, they are trying to figure things out and persevere. However, I do wonder what will happen in the future. The Wall Street Journal reported that rent for apartments nationwide went up between 17% to 40% last year. I understand why apartment developers can persevere despite increased prices; home building is proceeding at an astounding rate thanks to Millennials wanting homes. Today, an architect friend told me that houses are being purchased on Zillow sight unseen within one hour of being posted with a rider requiring the purchaser to match any higher offers submitted. Between price increases and material availability issues, it is just crazy. 

Senior Living developers are struggling more facing similar construction price increases. They also have labor and other significantly increased expenses and slower occupancy. Nevertheless, demand keeps building as people continue to age.

The Federal Reserve said inflation was transitory (which I never believed). They are finally talking about slowing things down, raising interest rates, and recognizing that they were wrong. These steps will improve pricing but hurt interest expense. The question, though, is how soon. Personally, I do not see any easing up of prices in 2022, but I see some relief next year. I hope things might stabilize soon, so I am no longer stuck in the middle of delivering bad news. 

Peter Douglas, P.E.
The Douglas Company

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