As we enter 2025, we’re faced with both positive and challenging news in the construction industry.

Let’s begin with the good news: construction costs, including materials and demand, have leveled off from last year, offering some predictability moving into the new year. But the bad news? Don’t expect borrowing costs to drop anytime soon. With the Federal Reserve pausing interest rates around 4.5%, borrowing will likely remain costly throughout the year. Let’s dive into the key factors we’re watching at the start of 2025.

Economic Uncertainty

A major concern for the construction industry is potential tariffs. There’s uncertainty about which items will be targeted and how long these tariffs will remain in place. Could they dramatically affect material prices? Only time will tell, and the industry must stay agile in response.

Labor costs are another topic of concern. As the U.S. implements tighter immigration policies in 2025, some businesses reliant on immigrant labor are reporting difficulties in finding workers. We haven’t yet fully seen the impact of these policies on labor costs, but the effects are likely to emerge as the year progresses.

Construction Material Costs

Looking at the data, the period between 2022 and 2024 saw dramatic swings in construction material costs. Specifically, lumber prices spiked in 2022 but have since leveled out, providing more stability for projections related to wood-framed buildings.

Similarly, steel prices are on the decline, based on conversations with steel fabrication industry leaders. However, we’re questioning whether the current FRED numbers accurately reflect these changes, as there might be a delay in showing the drop.

Forecast for 2025

The Turner Building Cost Index has yet to release a quarterly update for 2025, but we’re currently holding on to a 5% escalation for the year. With factors like tariffs, immigration policies, and interest rates in limbo, it’s important to keep a keen eye on how they will shape construction costs in 2025.

Weather and External Factors

Severe weather events like Hurricane Helene in North Carolina, wildfires in California, and unexpected cold fronts in the southern U.S. will likely impact both labor and material prices moving into 2025. Additionally, changes in foreign trade policies could impact material costs.

Construction Materials Pricing Lumber Pricing Index Steel Pricing
Construction Materials Pricing Lumber Pricing Index Steel Pricing

Understanding these trends is essential for effective planning and budgeting in your next construction project. If you need a partner to help navigate through it all, consider our cost estimating services to leverage the expertise of Design Collaborative’s Chief Cost Estimator, Thad Berkes.

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