Forecasting Home Construction: Will 2024 Bring Lower Costs?

Managing home construction and business insurance costs is vital for construction businesses seeking stability and growth. Commercial property insurance is especially crucial to address financial uncertainties and mitigate risks preemptively.

Businesses that strategically integrate business insurance into their cost projections can better safeguard against unexpected expenses. They can also better ensure resilience and long-term success in the construction sector.

The outlook for construction prices in 2024 varies among experts. While some anticipate stabilization, others suggest the possibility of further increases in certain materials. 

Construction insurance safeguards against cost fluctuations in 2024, providing a financial buffer that mitigates risks associated with unforeseen events and price volatility in the construction industry.

Current Construction Trends Overview

Material costs surged by an average of 19% in 2023. Although there has been a slight dip amid supply chain recovery, they remain notably higher than pre-pandemic levels.

Some industry experts anticipate a continued increase throughout 2024 and 2025, projecting a 25% to 28% rise compared to the pre-2020 trajectory. This situation poses significant challenges for budget-friendly home construction.

Factors Influencing Construction Expenses

In 2024, various factors will influence construction expenses. 

Roofing costs are expected to remain steady despite a decrease in availability. Drywall prices are anticipated to rise, with stocks remaining somewhat stable. 

Cement and concrete may see higher prices as stocks decline, while lumber and steel prices are expected to fall as availability increases. Mechanical component prices are projected to rise due to material scarcity. 

Additionally, the construction industry is grappling with a labor crisis. This particular issue with supply is likely to persist in the coming years.

Price Increases Heighten Potential Risks for Builders

In 2024, builders face potential risks as roofing availability decreases, impacting material sourcing. Rising prices for drywall, cement, and concrete prices will likely pose challenges to construction budgets. 

The fluctuating costs of lumber, steel, and mechanical components also increase the overall risk for builders. The labor and supply crises further add to the challenges the construction industry will face in 2024.

2024 Cost Factors

There is some good news on the horizon. A report from Oxford Economics suggests that prices for key input commodities are expected to continue falling in 2023 and 2024.

Despite the expected decrease, the current level of construction material prices remains significantly higher than pre-pandemic levels. A construction materials report from Gordian reveals that approximately 82.5% of these materials have seen a notable cost increase since 2020, with an average surge of 19%.

Construction Insurance and Cost Increases

Builders can leverage construction insurance as a strategic tool to mitigate the impact of cost increases. This risk management approach provides a financial buffer, protecting against the uncertainties associated with rising construction expenses.

Strategies for Managing Risks

Managing risks during price fluctuations involves the following approaches:

• Diversification: Spread sourcing across multiple suppliers to reduce dependence on a single source.
• Long-term contracts: Secure fixed-price contracts with suppliers to stabilize costs over an extended period.
• Strategic stockpiling: Maintain a reserve of essential materials to offset sudden price spikes.
• Collaborative partnerships: Build strong relationships with suppliers for better communication and negotiation during fluctuating markets.
• Flexible budgeting: Develop adaptable budgets that account for potential price variations, allowing for agile adjustments.
• Risk assessment: Conduct thorough risk assessments to identify vulnerabilities and develop contingency plans.
• Insurance coverage: Invest in construction insurance to provide financial protection against unforeseen cost escalations.

Construction Insurance Strategies

Various types of construction insurance can effectively mitigate cost risks:

• Builder’s risk insurance: Protects against damage to the construction project, including materials, equipment, and structures.
• Performance bond insurance: Ensures project completion by a bonded contractor, safeguarding against financial losses due to non-completion.
• Delay in startup (DSU) insurance: Covers financial losses resulting from project delays beyond the specified start date.
• Contractor’s professional liability insurance: Protects against claims related to professional errors, omissions, or negligence in design or construction.
• Subcontractor default insurance (SDI): Shields against financial losses caused by a subcontractor’s default or failure to perform.
• Surety bonds: Guarantee project completion and adherence to contractual obligations, offering financial security to project owners.
• Environmental liability insurance: Covers costs associated with environmental damage or pollution that may occur during construction.
• Equipment breakdown insurance: Protects against the costs of repairing or replacing damaged construction equipment.
• General liability insurance: Provides coverage for third-party bodily injury or property damage claims arising from construction activities.
• Wrap-up insurance programs: Consolidate coverage for multiple parties involved in a construction project, streamlining risk management.

Understanding and combining these insurance options can form a comprehensive risk management strategy for construction projects. Furthermore, customizing insurance policies helps address potential cost fluctuations and provides financial protection against uncertainties.

Risk Management and Coverage Adjustment Strategies

Builders can employ the following strategies for effective risk management and coverage adjustment:

• Continuous monitoring: Regularly assess market trends to identify potential risks and adjust coverage accordingly.
• Diversification: Spread sourcing across multiple suppliers and markets to reduce dependence on a single source.
• Flexible contracts: Negotiate flexible contracts that allow adjustments in coverage based on changing project needs and market conditions.
• Market intelligence: Stay informed about industry developments and economic indicators to make proactive decisions.
• Contingency planning: Develop comprehensive contingency plans to address unforeseen events that could impact costs.
• Insurance reviews: Regularly review and update insurance policies to ensure they align with current project requirements and potential risks.

Decoding the Market

Home construction costs in 2024 will be shaped by factors such as fluctuating material prices and varying availability. Ongoing labor challenges and projected material cost increases will also pose significant challenges.

However, construction insurance can mitigate risks associated with unpredictable market dynamics. Despite the market’s volatility, business insurance tailored for the construction industry can provide a financial safeguard. 

Make sure your business has adequate insurance. Take proactive steps to secure protection against potential uncertainties in the construction industry.

About Daniels Insurance

At Daniels Insurance, Inc., we have a unique understanding of the risks that businesses like yours face on a regular basis. With the backing of our comprehensive coverage and our dedication to customer service and quick claims resolution, your business will be fully protected. For more information, contact us today at (855) 565-7616.