Will Construction Costs Go Down (in 2023)?

Tom Gaffey
by Tom Gaffey

From record sales and rapid price increases to historic supply chain issues and steady interest rate hikes, things are without a doubt wild and constantly evolving in today’s construction world. But even with these major shifts and hurdles, buildings are still going up and new construction is soldiering on.

If you are considering a building project, you might be asking yourself whether or not construction costs are likely to go down in 2023.

Construction costs are not likely to go down in 2023. They are, however, expected to increase at a more reasonable rate of around 4%, significantly less than the increases in 2022. Several variables impact the price of construction and make it difficult to say for certain what the future holds. These factors include the labor market, supply chain issues, interest rates and inflation.

Construction prices are not dipping down to pre-pandemic prices any time soon, if ever. But this does not necessarily mean the prices are going to skyrocket. In fact, it is common and standard for construction costs to increase from year to year.

There are also some silver linings in 2023 that might make you want to consider starting the construction project you have been putting off. But first, you need to understand all the variables that impact construction costs.

Five Factors That Impact Construction Costs In 2023

1. Labor Shortages And Costs

Labor shortages and the increased costs associated with labor have had a huge impact on building in the last few years due to the pandemic. Construction essentially halted due to an inability to find workers and provide safe conditions.

In this new era, rates for workers are higher. If you are looking for skilled laborers, then the cost is even higher. Consider how many extra hands you need for your project, as this will impact the cost and price increase from previous years.

2. Supply Availability

Supply chain issues made headlines throughout 2021 and 2022. Some items were not available, others were available in scarcity, causing prices to skyrocket. Just like with anything involving supply and demand, when supply is low, demand shoots up.

This was one major reason for the sharp uptick in construction costs over the last few years. The good news is that while some supply chain issues still exist today, they have cooled off significantly since they peaked during the COVID-19 pandemic. This means that while goods might be higher priced than they were a few years ago, you are not as likely to experience sticker shock or empty shelves.

3. Inflation Rates

Perhaps the biggest factor when it comes to price increases for construction, and everything for that matter, is inflation. Unless you have been living under a rock the last two years, inflation is currently on the tip of everyone’s tongue.

The entire world is experiencing inflation, including the United States. It is normal to experience slow and steady price increases over time. In fact, typically, inflation is about 2% in this country, and this is considered normal.

Currently, however, the country is still struggling to get its inflation under control and inflation is fluctuating between 6% and 8%. This is some of the highest inflation in decades.

It also means things are simply more expensive, and continue to become more expensive almost every time you blink. Much of the future of construction costs are directly linked to the rate of inflation and whether or not it will continue to grow at this rapid rate.

4. The Federal Reserve Interest Rates

Another thing to consider is interest rates. While some people have all the capital necessary to fund a major construction project, others rely heavily on loans. In 2023, however, loans are a lot more expensive than they were a year ago.

In efforts to curb inflation, the U.S. Federal Reserve has steadily increased interest rates, which were almost at 0% during the pandemic. The federal reserve has hiked up interest rates a total of 7 times in just 12 months. The rate is currently at almost 4.5%, which means it is more than 4% more expensive to borrow money than it was just a year ago.

5. Fears Of A Recession

The last variable to consider when it comes to construction costs is fear. More specifically, a fear of a recession is what can impact construction costs.

is a continued looming fear that there may or may not be a recession. A recession could mean decreased property values, and disaster for sellers and builders who have seen otherwise booming times as of late.

This fear can manifest in many ways, but mostly it is in caution. This means that as times grow more uncertain, only “sure bet” construction projects are championed. This can potentially affect loans, contractors and your ability to find investors and workers.

Do Construction Costs Always Increase Year To Year?

Just as the price of most goods increases year to year with general inflation, so do construction costs. Historically, the primary reason for a year-to-year increase in price for construction is due to increased cost of goods.

In 2023, this is no exception. The price of goods continue to increase, which in turn makes building more expensive. This, combined with the increased demand for employees (and need to pay each employee more), has resulted in an unavoidable increase in construction costs, even as supply shortages and inflation cools.

Regardless of whether or not there is continued inflation, labor shortages or even a recession, the odds are very high that the cost of construction will increase in 2023. The bigger question is exactly how much will it increase? That, of course, only time will tell.

Pros And Cons To Starting A New Construction In 2023

Pros To Starting Construction In 2023

  • Materials Are More Readily Available: Unlike 2021 and 2022, the supply shortage that has affected many different markets has mostly subsided. So, while costs might be higher year-over-year, the shortages are fewer and farther between.
  • Great Time To Start Building Your “Forever” Home: While prices aren’t going down in 2023, they also aren’t likely to go down in 2024 or the year after that. If you have the capitol, now is a good time to start building a home you don’t plan to sell.
  • More Contractors To Choose From Than Previous Years: The real estate building boom has slowed as interest rates rise. This means you should have an easier time finding a variety of qualified contractors to choose from.
  • Ability To Negotiate If You Have Capital: If you have the money, you can negotiate much better than in the last few years, thanks to a slowly cooling contraction and real estate market.

Cons To Starting A Construction Project In 2023

  • Uncertain Economic Times: The threat of a potential recession still looms as a potential reality. This means if the economy were to take a downturn, your current construction investment could depreciate before you even finish building it.
  • Labor Shortages Still Prevalent: While labor difficulties are not as dire as last year, it can still be challenging to find quality help. This means that right now you might have to settle for unskilled labor workers or pay top dollar for qualified candidates.
  • Bad Time To Take Out Loans: If you don’t have the savings for a construction project, you might want to wait a bit. Interest rates are high and likely to continue to climb even higher for the next several months. This means paying back the investment will cost you a lot if you decide to take out a loan now.
  • Very Risky Time To Build A Home For A Quick Sale: While now might be a good time to start on a home you live in for many years, it is a very risky time to build a project that you plan to flip within the next few years. With a potential recession, a war in Ukraine and many other global uncertainties, it might be good to take a break.

How To Prepare For Construction Price Increases In Advance

Research The Market And Economic Climate

Regardless if you plan to build this year, next year, or in 10 years, make sure you are doing your research. While the economy can be unpredictable, it is possible to look at historical data and predictions to determine when is a good time to start a construction project. If you aren’t planning to build for several years, do your best to save as much as possible. This will decrease your need to rely so heavily on fluctuating interest rates.

Look For Discounted And Consider Lower Cost Materials

Another great way to get around increased year-to-year construction costs is to seek out cheaper materials. Look for discounted, free and even cheap materials. There are all sorts of places you can find building materials for cheap or free. These places include online marketplaces, auctions, yard sales and demolition sites.

Find A Transparent And Flexible Contractor

A good contractor is a builder’s best friend. If you have a reliable and quality contractor, he or she should be able to roll with the punches. A contractor with many years experience is also likely able to assist you in building your dream home closer to your budget than one without experience and industry connections.

Summing Up If Construction Costs Will Go Down In 2023

If you are wondering if construction prices will go down in 2023, you are likely to be disappointed. Unfortunately, construction prices tend to increase every year. The reason for this is material costs and other costs associated with building rise each year.

If you want to know whether or not it is a good time to start a construction project, consider some of the major variables currently impacting construction costs . These variables include labor and material shortages, interest rates, and inflation.

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Tom Gaffey
Tom Gaffey

Tom Gaffey is an expert writer who currently resides in Washington D.C. Tom has a passion for real estate and home improvement writing, as well as travel and lifestyle writing. He lived the last twelve years in Hawaii where he worked closely with luxury resorts and event planners, mastering his knowledge of aesthetics and luxury products. This is where he found his passion for home improvement and a keen interest in DIY projects. Currently, Tom resides in Washington D.C, and also working on his debut fiction novel.

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