Dive Brief:

• After nearly two years of skyrocketing costs for nonresidential building materials, Mortenson’s Construction Cost Index increased just 0.2% in the latest quarter, according to a report from the Minneapolis-based contractor. 
• The report looked at both national price trends, as well as those in seven select markets across the country. It priced a representative non-residential construction project in those regions to determine relative cost movements. The changes ranged from a 0.8% decrease in the cost of construction in Milwaukee, to an increase of 1.2% in Phoenix. Prices in Seattle stayed flat.
• “The overall outlook for non-residential construction remains positive, despite persistent challenges and uncertainty regarding the overall economy, as the industry works to find its footing in 2023,” Mortenson said in the report. On a national basis, costs increased 6.7% for the year through December of 2022, the report said. 

Dive Insight:

In December, the Associated General Contractors of America issued its eighth Construction Inflation Alert since March of 2021. That report noted that while the rate of increase of material prices was slowing, it still stood at 11.2% for the 12 months ended in October 2022. 

The Mortenson report, while not as comprehensive, takes a more granular view of specific markets to provide a boots-on-the-ground view of what’s happening at construction sites. 

In the seven markets it examined, the general contractor saw the following construction cost trends during the fourth quarter of 2022:

• Milwaukee: -0.8%

• Minneapolis: -0.3%

• Seattle: 0.0%

• Denver: 0.1%

• Chicago: 0.3%

• Portland: 0.7%

• Phoenix: 1.2%

While the report noted that input prices continued to level off in Q4 or even experienced decreases, it also pointed to continuing headwinds from higher interest rates as well as persistent elongated lead times and material shortages. Indeed, in December, input prices for construction plummeted 2.7%, the largest drop since April 2020 earlier in the pandemic. 

But economists warned then that additional hikes could be seen in the months ahead. 

“Some prices have already turned higher in January,” said Ken Simonson, chief economist at the Associated General Contractors of America, following that news. “Contractors are right to rank materials costs as a major concern for 2023.” 

Mortenson’s report took a similarly cautionary tone, but on the balance had an upbeat outlook based on the conditions in the markets it surveyed, and noted that the first quarter of 2023 was likely to provide more clarity to pricing trends.  

“Our construction cost index indicates that the increases experienced over the last two years are slowing,” Mortenson reported. “Based on market data and our insights, we remain cautiously optimistic while looking ahead to gauge further impacts from changes to the national economy and construction in 2023. We recommend customers maintain resiliency as we believe Q1 could provide greater clarity on industry direction for the remainder of the year.”