Residential construction prices see declines in March
Overall input prices for residential construction moved ahead in March, but not by much.
The latest Price Producer Index (PPI) shows residential building materials rose just 0.3% last month. Overall construction prices increased 0.2% in March while non-residential prices climbed 0.4%.
According to the National Association of Home Builders, since declining the last four months of 2022, the index has increased for three consecutive months by a total of 1.6%.
The prices of goods inputs to residential construction, including energy, gained 0.1% over the month as a 6.4% decrease in energy prices offset increases in other product categories.
Overall construction input prices are 0.9% lower than in March 2022, while nonresidential construction input prices have fallen 0.6% over the past year, Associated Builders and Contractors (ABC) reported. Additionally, construction input prices are now up 39% since February 2020, the month before the COVID-19 pandemic began.
“Construction input costs are down on a year-over-year basis for the first time since August 2020,” said ABC Chief Economist Anirban Basu. “The good news is that the latest PPI data, which show broad-based declines in both goods and services prices, suggest that the expected 25 basis point interest rate hike at the Federal Reserve’s May meeting will be the last of the cycle.”
Inputs for multifamily constitution are up 0.3% from the previous month and 0.4% higher on a year-over-year basis. Maintenance and repair inputs were flat for March and down 0.9% from a year ago.
Pricing problems for construction could be on the horizon, however.
“The bad news is that this data indicates greatly diminished pricing power among wholesalers and others,” said Basu. “While some will cheer the notion that rate increases are set to end soon, the Federal Reserve may want to maintain higher interest rates for longer to ensure that inflation has been suppressed. This, along with other signs of slowing economic activity, suggests that the possibility of recession remains elevated, though the economic outlook is increasingly uncertain.”
Here’s how major residential building product price changes break down for March:
Softwood lumber declined 4% in March, marking the eighth consecutive monthly decline. Since peaking in March 2022, the index has fallen by more than half (-52.5%) and is now just 11.5% above the January 2020 level.
Gypsum building materials dipped by 0.1% in March after increasing 0.4% in February. Gypsum building materials prices are 11.8% higher than they were a year ago. Prices have been stable—up just 0.2%–in the six months since.
Steel mill product prices increased just 1.2% in March after climbing 2.5% in February. This was the second monthly price increase since May 2022. But overall prices have dropped 25.2% since May 2022 and are down 15.1% over the past 12 months.
The index for residential construction services inputs to residential construction decreased 0.8% in March, following a 0.6% decline in February. Prices have declined 15.2% over the past year but are 23.2% higher than the pre-pandemic level at the start of 2020.
Ready-mix concrete (RMS) prices were up 0.7% in March after gains of 0.6% and 0.9% in February and January of this year.RMC prices have increased 13.1% over the past 12 months and 24.2% since January 2021.
Click here to read the full Producer Price Index report for March 2023.
