Prices have gone up and there’s not much sign of coming down.
Prices have gone up and there’s not much sign of coming down.
Sandy: Hi Tom, I must vent a minute. I just filled up my car and my tank fill was almost $100. This is crazy!
Tom: Tell me about it. We just finished a road trip to South Dakota and almost spent $1,000 in gas. Inflation is real.
Sandy: Yes, inflation is real. It is a nightmare and it is affecting everyone and every family.
Tom: The construction industry is no exception. Prices have gone up and there’s not much sign of coming down.
Sandy: I hope our readers understand the implications and interconnectivity that inflation is having on our industry. Plastics, metals, lumber, windows, bathtubs, energy, paint and everything else is costing more.
Tom: It takes diesel and gasoline to get the raw materials prepared for building products such as concrete, masonry and asphalt, so energy prices are a big part of inflation.
Sandy: It seems like everything is touched by the inflation monster. I am hearing all manner of complaining from both our contractors as well as our citizens. The frustration level is high.
Tom: I get it. But, Sandy, there is at least one positive aspect we are seeing in the remodeling industry, and that is the value of our homes has risen.
Sandy: Boy, are you ever the optimist! But I suppose you are right; home values are certainly up.
Tom: According to Zillow, between October of 2021 and October 2022 the value of an average home will rise by 14%.
Sandy: Wow, if my math is right, that means $14,000 per $100,000 of value. That is a lot. So, with all the costs going up, tell me how you see this unseen benefit of yours?
Tom: LOL. Sure. The average value of a home in Prescott, according to Zillow, is $621,216. Given that, a 14% increase would add about $85,000 to that home.
Sandy: Maybe a great time to sell, but then what? It will cost you more to buy and no value is realized.
Tom: True, so true. Unless, of course, you relocate to a small town in Nebraska that does not have the same real estate pressures. Your access to amenities may be compromised, though.
Sandy: There are days though!
Tom: So, given the value increase of a home, and let’s say you were considering an improvement project, you would have more leverage in getting a loan to fund your project – and $85,000 is a lot of value.
Sandy: That could be a new master suite! OK, I get where you are coming from. A tiny unseen benefit, I will give you that. So, then Tom, what advice could you give to our readers about navigating any project in crazy inflation times like these?
Tom: My first go-to in cost control is always planning. Spend the time before you start planning every detail you can about your project. In inflationary times, changes can be costly.
Sandy: Most contractors are now having to order finishes, cabinets, windows at the signing of the contract because of supply chain issues. A change in some those items might be costly in both dollars and time.
Sandy: Folks need to take a bit of extra care in selecting the company they will be moving forward with. We recommend they ask questions about what strategies that company has to deal with cost increases.
Tom: Excellent. While no company is immune to price changes and no one can protect everything, the answers to that question alone will give the consumer insight to the level of professionalism the company has.
Sandy: Good advice. We always try to council people to interview, interview, interview. Prepare your questions in advance and ask the same questions of each company you interview.
Tom: Selecting the right company, especially in times of inflation, can make all the difference. But, all told, I would not recommend putting off a project while waiting for prices to come down.
Sandy: We are not seeing much downward movement at all, and many people are wondering, will construction costs go down and, if so, when?
Tom: I have never seen such record spikes in the price of building materials like lumber and shortages of many other products because of supply chain problems.
Sandy: Last year’s high home construction costs resulted from several factors, and many of them were related to the pandemic. Staffing shortages were one factor, and we know that many people used the pandemic to remodel their homes, and the spike in demand meant that there often were not enough workers.
Tom: Families began ordering supplies in record numbers, and it has taken two years for the supply lines to catch up and we aren’t caught up yet.
Sandy: Labor shortages are going to keep construction prices higher – upwards of 40% of construction.
Tom: And then there is that word we talked about earlier, inflation. Inflation is on the rise, and that is bringing up the cost of everything from groceries to housing supplies. We are at the highest point in inflation since 1982.
Sandy: While the resulting price increases affect all commodities, it will certainly be a factor that keeps home construction costs higher than usual.
Tom: Of course, construction prices are also closely tied to supply and demand, so this is another reason the answer to the question of will construction costs come down is no, and it’s not looking likely for the early part of 2023, either.
Sandy: Increased construction costs are difficult to stay on top of and what I see with price volatility across the board, this is harder than usual for the industry to do. I see that quotes to customers are shortened and the validity periods are being adjusted every 10 days or even one week at a time.
Tom: I think homeowners should stop looking at price – there will always be companies that cut prices to the bone to get work, but they usually don’t last awfully long – so focus on the company that offers superior service, and can get the job done in a timely manner.
Sandy: I say the economy is a wave. When it goes up, it will always come back down again. When it comes to construction costs, the key for everyone right now is to float on top of the wave until things change again. Because they will, and we will see the end of all this at some point. Inflation will moderate but not reverse.
Together, Tom and I say, “Happy September to you.” Until next month. Thanks for stopping in to read At Home With Tom and Sandy. QCBN
Tom Reilly, LEED Accredited Professional, Architect.
Sandy Griffis, Executive Director, Yavapai County Contractors Association. (928) 778-0040
Remember to tune in to YCCA’s Hammer Time every Saturday and Sunday morning 7:00 am on KQNA 1130 am/99.9 fm/95/5fm or the web kqna.com. Listen to Sandy and her wingman Mike talk about the construction industry and meet your local community partners. Hammer Time is a great way to start your weekend.