Construction Costs Cooling, but Labor Shortages Persist

Construction costs have begun to cool off this summer, according to a new report from The Weitz Co. Material prices, which surged last year, are now increasing at a slower pace—up 4.5% year-over-year compared to 6.5% last quarter.

While the public sector has been the main driver of construction activity, with spending up 11% year-over-year, the private sector is showing signs of optimism. The possibility of a federal interest rate cut by year-end is boosting confidence among private developers.

Lumber prices have retreated to 2018 levels, primarily due to high interest rates dampening demand for new construction. The backlog of projects has increased slightly but remains shorter than a year ago.

However, general contractors and construction managers remain cautious. Labor shortages persist, with industry unemployment at 3.3% compared to the national rate of 4.3%. Weitz anticipates construction costs will rise by 4% to 5% over the next year.