Overview of The Mortenson Report

According to the Mortenson report, which provides a granular view of specific markets, construction costs are stabilizing or even decreasing in some areas. The report analyzed seven markets during the fourth quarter of 2022 and found that Milwaukee experienced a decrease of 0.8%, Minneapolis experienced a decrease of 0.3%, Seattle remained steady at 0.0%, Denver experienced an increase of 0.1%, Chicago experienced an increase of 0.3%, Portland experienced an increase of 0.7%, and Phoenix experienced an increase of 1.2%.

The Report Indicates Slowing Construction Inflation in Select Markets

While the report noted a leveling off of input prices in Q4, it also pointed to headwinds from higher interest rates and persistent material shortages and elongated lead times. Despite the recent drop in input prices, economists warned that additional hikes could occur in the coming months.

Ken Simonson who is the chief economist at the Associated General Contractors of America was of the opinion that contractors are not wrong for considering material costs to be a major concern for four people in the construction industry in 2023. The Mortenson report took a similarly cautionary tone, but on balance had an optimistic outlook that it got from the current situation in the markets it surveyed.

Mortenson reported, “Our construction cost index indicates that the increases experienced over the last two years are slowing… We remain cautiously optimistic while looking ahead to gauge further impacts from changes to the national economy and construction in 2023.”

The first quarter of 2023 is expected to provide greater clarity on industry direction for the remainder of the year, and Mortenson recommends that customers maintain resiliency. The report suggests that while construction inflation may be slowing, ongoing headwinds such as material shortages and interest rate hikes may still impact construction costs in the coming year.