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January 31, 2007 | Source: The National Real Estate Invesor

Construction Prices Headed Up in 2007

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Construction Prices Headed Up in 2007
By Matt Hudgins

Commercial construction costs will increase on average by 6% to 8% in 2007 -- two to four times faster than inflation -- despite a slowing economy, according to Kenneth Simonson, chief economist for the Associated General Contractors of America (AGC).
Driving those increases are international demand for materials, limited domestic supplies and high energy prices. Labor costs will grow more slowly, 5% to 6% over the course of 2007, but still well ahead of last year's 2.5% core inflation rate, which excludes food and energy.

But wait a minute. The plunging housing market should lower demand both for materials and labor, right? Shouldn't a less constrained supply be reflected in prices for commercial construction?

Well, yes. But that's already included in Simonson's forecast. Had single-
family construction this year barreled along as before, commercial construction costs might be increasing 10% annually, as they did in 2004. In other words, deflation of the housing market is taking the edge off the severe price growth of the past three years, but prices keep rising.
Read full story here.

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By Matt Hudgins

Commercial construction costs will increase on average by 6% to 8% in 2007 -- two to four times faster than inflation -- despite a slowing economy, according to Kenneth Simonson, chief economist for the Associated General Contractors of America (AGC).
Driving those increases are international demand for materials, limited domestic supplies and high energy prices. Labor costs will grow more slowly, 5% to 6% over the course of 2007, but still well ahead of last year's 2.5% core inflation rate, which excludes food and energy.

But wait a minute. The plunging housing market should lower demand both for materials and labor, right? Shouldn't a less constrained supply be reflected in prices for commercial construction?

Well, yes. But that's already included in Simonson's forecast. Had single-
family construction this year barreled along as before, commercial construction costs might be increasing 10% annually, as they did in 2004. In other words, deflation of the housing market is taking the edge off the severe price growth of the past three years, but prices keep rising. Read full story here.

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