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With vaccination rates increasing and the U.S. economy slowly reopening, industries are starting to see a sharp increase in the cost of materials and labor, triggering price hikes across sectors.

According to the Labor Department, the ongoing economic rebound is driving the biggest surge in inflation in nearly 13 years. Just last May, consumer price rose to 5% from 2020, the largest increase in the consumer-price index since August 2008.

As prices continue to rise, the Federal Open Market Committee predicts that annual inflation will rise to 3.4% by the end of 2021. This is a full percentage point higher than it had estimated in April.

Price hikes in the construction industry

Prices have gone up across all industries, and the construction sector is no exception. Here are some of the factors that contribute to rising construction costs in the country:

Lumber

Over the last 12 months, lumber has almost doubled in value. This is the result of several factors including the booming housing market during the pandemic, reduced timber availability, and even the 2017 Lumber Tariff imposed on softwood lumber imports from Canada.

Oil

From the manufacturing and transportation of materials to equipment operation, oil is integral to all types of construction projects. In the U.S., the price of crude oil has increased to more than 80% since October 2020.

Apart from the growing demand for construction projects, travel restrictions are gradually being lifted which further boosts the demand for oil. As a result, experts predict that prices may even go higher in the coming months.

Copper

Copper is a vital component of various construction materials including roofs, gutters, water pipes, and electrical wires. In April 2021, copper prices per ton rose to almost $10,000, representing its highest rate in 10 years.

Apart from the ongoing global economic resurgence, demand for copper is anticipated to surge further once the green energy initiatives included in President Joe Biden’s $2.2 trillion infrastructure proposal are enacted.

With demand increasing and supply chain issues ongoing, a recent analysis from Goldman Sachs suggests that the price of copper can even shoot up to $15,000 by 2025.

Steel

Despite steel prices in China and Europe rising to 80%, U.S. steel prices are 68% greater than the global market rate.

Since the 1950s, the quoted price of imported steel is generally lower than domestic rates. However, shipping issues and scarce overseas supplies are reducing U.S. imports which directly affects the price of steel.

Can real estate hedge against inflation?

Inflation poses a threat to investors because it shrinks real savings and investment returns.

Protect your investment portfolio against inflation by investing in hard assets like real estate. Just as property values rise with inflation, so does the amount you can charge for rent, boosting your profits over time.

With the cost of construction materials at an all-time high, investing in real estate can generate significant returns and help you keep pace with rising prices across the economy.

If you’re interested in real estate and multi-family acquisitions, Plus One Syndications may have the right investment for you. Book a consultation with us for professional market advice and value-added investment strategies.

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