Archology

Is Now a Good Time to Construct?

We get a lot of questions from clients asking about if it’s a good time to construct. If they can time the market. Do they need to move fast to lock in pricing or wait out a spike in material costs. Of course, there is no perfect answer to these questions. We don’t have a crystal ball, but our usual advice to clients is you can’t really tell. Material costs, labor costs, and booms and busts are almost impossible to predict reliably. This is why construction companies have such large margins, they need them to cover the inevitable mistakes they’ll make in making predictions on costs over the life of a project.

Scheduling when to start is probably better determined by weather or by the business cycle of the area. For instance, a lot of projects start in our area in the fall. The weather is pleasant and reasonably dry leading to few delays before the house is weather tight. In addition, it gives the contractor as much time before memorial day as possible so that the house is ready for the beach season. Because everyone knows this, it makes the cost of construction slightly higher in the fall due to the yearly shortfalls in labor and materials, however, waiting until the winter or starting a little earlier both have their own risks which you need to understand, so making a choice based solely on the price of lumber is not wise.

Case Study: Lumber Prices

Something that people have really noticed is the price of lumber. Lumber has skyrocketed in price and so we get questions about why and what we can expect a lot recently. We did a deep dive researching this, and found a few interesting tidbits that show how hard it is to time the construction market. There are several factors, but it really comes down to the availability of materials. Wood products (including lumber and engineered wood products like plywood, OSB, etc.) have been in a slowly shrinking market since the Great Recession. That’s over a decade of low or no growth in the market. This means that there has been very little pressure to increase capacity by the manufacturers.

When the pandemic first hit, the assumption was that this would hurt the economy and construction is extremely sensitive to market fluctuations. So these manufacturers assumed that they were looking at even worse conditions and moved to cut costs rather than expand. Unfortunately, they were wrong and demand for construction soared after a brief pause. Compounding this mistake is the difficulty of ramping up production. Forests take decades to mature. If you plant trees for lumber next week, even the fastest growing trees will need time to grow. Sawmills are large and very expensive to build. These are also much more dangerous jobs which can make it difficult to expand the workforce quickly.

We’re also dealing with different types of shortages. In the west coast, wild fires, beetle infestations, and conservation efforts have limited the amount of harvestable timber available. In the south, there’s plenty of trees, but no where to process them. Put that all together and we’re in a squeeze where some things are just about impossible to find and have therefore quadrupled or more in price.

How to Tell When it’s a Good Time to Construct

So, does that mean you should wait for a good time to construct? Well, on the supply side, is there any reason to think demand will dry up soon? I’m not an economist, but we haven’t seen much evidence of a slow down in demand. In fact, people who decide to delay just push the demand out farther. Eventually, demand will slack, but it may not happen quickly or on a timetable that you’re prepared to wait for. In fact, if demand drops due to a recession, that could affect your ability to afford the project at that point anyway depending how you were planning to finance the work. What about supply? As we’ve already discussed, supply does not increase quickly. It could take a couple of years to see any increase in supply, and that’s assuming the manufacturers move to open up sawmills or harvest more timber now.

This sort of price issue happens a lot in construction. The price of oil can drastically affect the costs of sealants, shingles, and paints. Massive building booms in Asia can cause shortages in steel or cement causing massive price fluctuations. It’s a bit more drastic right now, but our advice remains the same. Construct on your time table. Waiting can backfire. We recently had a client decide to hold off until after the election figuring that the uncertainty of the election was part of the price problem. Unfortunately, that definitely didn’t help and prices may have gotten worse during the wait. If you’re improving your personal home for your own reasons, then timing should be by when you want to use it and find a way to find value in scaling back the design or finishes.