The Cost of Construction

Decreases in oil prices in recent months have put a little more money in the pockets of consumers – including homebuyers – though recent data indicates that the commodity may once again be on the upswing. Crude oil rose to $52.78 per barrel in the week ending Feb. 13, after falling below $45 in January. Even this increase in price signals relief from prices that have been consistently greater than $100 per barrel for much of the last four years, according to Stratfor Global Intelligence. Gasoline has followed crude oil’s downward trend. The national average for the cost of a gallon of gas stood at $2.25 for regular for Feb. 13, according to AAA.

Prices were higher in Illinois, at about $2.40 for a gallon of regular. The cost of diesel – which fuels most construction equipment and the trucks that haul materials – has been somewhat slower to change and averaged about $2.87. Nationally, diesel cost about $2.83 per gallon. In Feb. 2014, diesel was priced at about $4 per gallon in Illinois. Whereas gasoline prices in Illinois have rebounded from $2.03 per gallon of regular a month ago, diesel prices have continued to fall. Gas prices and how they fluctuate impact construction; although wages haven’t grown in the past few months, where there are cost savings for prospective homebuyers, especially of new construction homes, where sales prices have trended upward, it bodes well in terms of building consumer confidence and encouraging buyers to enter the market. On the other side, when gas prices increase, consumers today may be less likely to buy new construction.

The Conference Board’s Consumer Confidence Index jumped sharply in January, from an already strong 93.1 in December to 102.1. That figure represents its highest level since hitting 105.6 in August 2007. Consumers saying that business was good as opposed to bad rose from 24.7 percent to 28.1 percent. Wolf believes that the lower oil prices may continue to benefit consumers and make them feel more confident about spending, but that it may do little to alter the cost of construction.

“The construction costs are high,” Wolf said. “As far as demand goes on the consumer side, oil prices going down can put a little more money in a typical consumer’s pocket, but I personally don’t see it as an effect on whether they purchase property or not. It’s more a small part of disposable income.”

John Carroll disagrees. While lower oil prices may not effect some of the associated costs of construction such as labor, some materials may become cheaper.

“Oil is not just gasoline,” Carroll said. “There are a lot of other products that are petroleum-based that go into building a home. On the cost side, that’s terrific. If we have cost savings, we can typically pass that on to the consumer.”