Latest Quarter-over-Quarter (Annualized) Change in Construction Costs is 18.5%
The latest annualized quarter-over-quarter percent change in construction costs in the United States has been an alarming 18.5%, according to RSMeans’ July 2008 Construction Cost Index report. The major reason has been a run-up in material costs due high prices in underlying commodities. For example, the international price of oil reached an all-time record level of $147.00 per barrel USD in mid-July. Many other commodity prices, while down somewhat from the highs at the peak of their cycles, remain elevated.
Seven Representative Cities
Let’s look at seven representative cities and see what has been transpiring. The following is based on the table that accompanies this report. The historical charts for over 50 cities are also included below.
New York (the most expensive U.S. city in which to build on an actual dollar-per-square-foot basis) moved to 29th with respect to year-over-year change (+6.3%) and way down to 47th in terms of annualized quarter-to-quarter change (+13.8%).
Chicago (7th most expensive overall) fell to 22nd position year-over-year (+6.6%), but climbed back up the charts to 8th spot for annualized quarterly change (+21.6%).
Los Angeles (12th most expensive) was only 27th year-over-year (+6.4%) but was 9th according to the latest quarter-to-quarter annualized figure (+21.3%).
Las Vegas (14th most expensive) took over the number one position both in terms of year-over-year change (+8.8%) and latest quarterly change annualized (+31.7%).
Washington (25th most expensive) was 14th year-over-year (+7.0%), but only 29th quarter-to-quarter annualized (+18.0%).
Miami (35th overall for actual expense) was near the top in 7th spot on a year-over-year basis (+7.3%), but retreated to 17th on a quarterly basis (+20.2%).
Charlotte (51st or bottom position among all cities in actual costs) was 20th year-over-year (+6.7%) and a similar 22nd quarter-to-quarter (+19.3%).
Half of “Top 10” Fastest-Rising-Construction-Cost Cities are in the South
New Orleans (+25.0%) in reconstruction and three cities participating in the Texas energy boom - Houston (+24.9%), San Antonio (+22.1%) and Dallas (+21.1%) - are among the fastest construction-cost growth centers in the country. Nashville (+26.3%) rounds out the southern contingent in the Top 10 on a quarter-to-quarter annualized basis.
Las Vegas, Baltimore, Oakland, Chicago and Los Angeles are the other cities with construction costs soaring at a more than 20% pace in the latest quarter. A quick look at the final column in the table reveals that no city in the table has an increase in construction costs that falls below double digits. Kansas City came in the lowest at +12.6%.
Worries about Rising Construction Costs should Abate
Over the last two months, commodity prices have eased considerably. The speculative bubble has burst mainly on account of reduced expectations for growth of the global economy. The rise in value of the U.S. dollar also helped in the late spring and early fall. Commodity prices have been moving inversely relative to the greenback.
Looking forward, the U.S. financial sector has fallen into utter disarray, jeopardizing the economic outlook even further. The prognosis for the U.S. currency has taken a turn for the worse, but with respect to commodity prices, any desire on the part of producers to maintain real returns will be overwhelmed by weaker demand. Rising construction costs should backslide on the list of worries for those operating in the construction industry.