Introduction to diving:
- Traditionally affordable markets such as Chicago and Milwaukee, Wisconsin saw the biggest increase in construction costs in the second quarter, according to a new report from Minneapolis-based general contractor Mortenson of seven cities across the country.
- , the company’s Q2 2022 Construction Cost Index report found that of the seven markets analyzed, Chicago saw the largest price surge of 4%. Milwaukee came in second with a 3.9 percent increase, and Portland, Ore., came in third with a 3.6 percent increase in prices.
- “Like many construction markets, the construction market continued to experience inflation headwinds in the first half of the year,” Clark Taylor, vice president of estimates at Mortenson, said in a release. “Current talk of a recession, rising interest rates and a slow recovery in supply chains may at some point favor the industry, but now we are seeing an upward trend in regional averages, in line with forecasts.”
Dive Insights:
Minneapolis (3.3%), Seattle (2.9%), Phoenix (2.55%) and Denver (2.2%) also saw increases. The average increase was 3.3 percent, Mortenson said. Compared with 12 months ago, construction costs are on average 11.8% higher.
The gains recorded through June 30 were aggregated before July’s producer price index showed costs fell for the first time since the early days of the pandemic.
The report from top 20 contractor Mortenson was released on Aug. 10, a day before the PPI figures, and acknowledged evidence that things were changing. It pointed to softening input prices in some categories earlier this summer, as reflected in the US Bureau of Labor Statistics’ June cost report.
“Upcoming U.S. economic data for the third quarter may indicate whether broader trends are starting to emerge,” the report said.
It’s not clear why prices have risen more in other affordable markets.
For example, Mortenson’s analysis of the Chicago market states, “The latest Fed Beige Book is an informal report on economic activity that points to some construction in Chicago and Minneapolis. and real estate activity has slowed, two otherwise healthy markets, although all tracked markets continue to experience higher input and labor costs.”
Earlier this summer, the Federal Reserve’s Beige Book Provided the first indication that rate hikes may have the desired effect by slowing demand.
But even with signs of a turnaround in the market, Mortenson said it still expects the second half of 2022 to behave in the same way as the first.
“Based on market data, observations and insights, Mortenson believes that much of the same will occur in the second half of the year, including continued labor challenges, increased material transportation costs, and product lead times and material shortages that remain a challenge,” the report said.
