Will Construction Costs Go Down (in 2023)?

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.

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.

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.

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.

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.

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.

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.