Construction cost changes, year over year and quarter to quarter, for 50-plus major cities in the United States are set out in the accompanying table and charts. This information is based on the latest Construction Cost Index material available from RSMeans. The lead story is that costs moderated from the second quarter to the third quarter − specifically from July 1st to October 1st − of this year, after rising fairly dramatically between the first and second quarters.

Year-over-year construction costs were still elevated (+7.8% nationally) in October, but this was primarily due to increases earlier in the year. Almost all construction materials have a commodity component and raw material prices peaked at the beginning of summer. For example, the international price of oil crested in mid-July and has since plummeted precipitously (i.e., from $147 USD per barrel to under $40 USD per barrel).

Raw Material Price Changes are Working their Way Down the Line
However, it takes time for the change in raw material prices to work their way down the line. This shows up in some of the material component cost index measures that RSMeans has compiled. For example, RSMeans’ “roofing and sidings” index (which has a large petroleum component) is +34.2% year over year and +17.6% quarter to quarter. “Thermal and moisture protection” is +11.8% year over year and +6.7% quarter to quarter. Those two indexes have significant tie-ins with previous energy price increases.

Slowing Growth in China has an Effect
At the same time, some changes in world demand are being reflected faster. For example, concrete costs were +11.8% year over year but only +2.3% quarter to quarter. Similarly, metal framing, joists and decking prices − largely based on steel − were +18.4% year over year but a much more restrained +2.5% from the previous quarter to the present one. The slowdown in China’s growth has taken some of the edge off earlier exceptional
demand for base metals, non-metallic minerals and iron and steel products.

In construction markets where there has been a prolonged period of reduced demand, costs have come off dramatically. This mainly relates to products that traditionally have a strong presence in the residential sector. Housing starts now stand more than 60% below their cyclical high point of January 2006. As a consequence, RSMeans’ plaster and gypsum board index is -10.4% year over year and -1.3% quarter to quarter. The “wood, plastics and composites” index is +1.1% year over year and +1.2% quarter to quarter.

Construction Labor Markets
The year-over-year change for installation costs, which is essentially labor, is just slightly below 4.0%, but the quarter-to-quarter rate is pulling back. The latter stood at +3.0% annualized in October and will probably fall further in the next quarter. This cost factor will not revive until there is a serious pick-up in housing starts. Such a turn of events will depend on consumers regaining their confidence, credit becoming more readily available and house prices stopping their slide and starting to climb again.

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