Construction Pricing Softening from Economic Slowdown

WASHINGTON, DC--A slowdown in the global economy primarily caused by the sub-prime mortgage crisis has led to softening in construction pricing throughout the United States in the second half of 2007, according to Jones Lang LaSalle's fourth quarter 2007 National Construction Smart analysis. David Dempsey (photo top right) is JLL's managing director.

After realizing growth in excess of 6 percent from 2004 – 2006, construction costs slowed considerably in 2007. The price of raw materials experienced the largest increase in 2004,averaging 15 percent growth, only to moderate to approximately 6 percent in 2005 and 2006.

Through the second half of 2007 prices grew by a modest 1.9 percent, decelerating from thefirst half of year, which averaged 2.8 percent growth. The 2007 decrease in prices was largelydue to the depreciating housing market and weak US economy.

The price of lumber experienced the sharpest drop in pricing. During the peak of the housingmarket cycle in 2004, lumber costs grew by over 17 percent annually. Lumber prices beganfalling in 2005 and by January 2008, when housing starts were 28 percent lower than 2007,demand for lumber dropped sharply.

As a result, prices fell by over 7 percent throughout 2007, the largest drop since 1998. The downturn in the US economy has caused the market for construction materials to soften, but global demand for specific materials, such as iron and steel has kept upward pressure on overall construction costs.

Developing countries are continuing to grow despite a troubled US economy and the demand for Iron and steel continues to be driven by countries such as China, India and parts of Asia, Africa and South America. The weak US dollar has made US exports of steel even more affordable to the developing countries, causing supplies to dwindle and placing additional upward pressure on prices.

For complete details in National Construction Smart, please contact:

John Sikaitis
+1 202 719 5839
John.Sikaitis@am.jll.com
Dave Dempsey
+1 202 719 5646
Dave.Dempsey@am.jll.com
Justine Morrison
+1 202 719 5793
Justine.Morrison@am.jll.com