INFLATION Expanding and Contracting

INFLATION Expanding and Contracting

By Peter Todd, Vice President of Construction

Inflation has been one of the hottest news headlines and discussed topics in our industry within the US economy for the past two years. Our development and construction projects have been stressed with the increased pace at which prices have risen. Typically, our construction projects were increasing from 2% to 3 5% year-over-year, however, with the increased demand, supply chain shortages, and general increase in the pace of our industry, we have seen some of the products that we buy increase over 30% in one year!

Nevertheless, that is slowly changing. The overall construction market is expected to contract 6% this year, with a shift in sector spending Warehousing, data center, and infrastructure volumes are expected to grow in 2023 through 2024, while single-family and commercial sectors will see lower volumes in 2023 We are of course in the multifamily market, however, our construction pricing is influenced by overall construction spending. Building materials such as re-bar, sheet metal, and wood products are expected to see negative cost growth this year We will see swings in pricing and disruption sooner than other sectors because the velocity and repetitive nature of our projects are much higher than other sectors.

With almost three years of enduring wild swings and extremes, supply chains are also progressing back up to speed and better in sync. With COVID, there was a seemingly overreaction pattern that happened with this major disruption that most of us have not seen in our lifetimes. When supply chains are in a state of disarray, prices increase to account for the disruption. Supply chain activity has yet to normalize, but it’s slowly returning to pre-pandemic trajectories.

Moreover, the consumer price index, which is an index of the variation in prices paid by typical consumers, increased to 4.9% in the past 12 months from April, official figures show. That was down from 5% in March and marks the tenth month in a row that price rises have slowed. This drop comes after the US central bank sharply raised interest rates to try to control inflation.

Multi-family construction can be very specific and foreseeable because of the similar product type and process that takes place. As we build similar unit types and building sizes, we can account for the different geographical areas and see some interesting trade and product swings. This information can help guide us in our decision-making, planning, and execution strategies. Moreover, since Fiduciary Real Estate Development can have several projects a year, we have better buying power and insight into our costs as compared to the market.