U.S. inflation officially is at a four-decade high at 8.6%. This is starting to affect many different parts of Californians’ lives such as gas, shopping, and business operations. However, it is clear to all that housing and the housing market is where most people are feeling the full weight of these all-time high interest rates. The cost of shelter in California is one of the highest in the nation and the increase in pricing is only making this more noticeable.
First-time home buyers are expected to be the ones who feel the total effects of inflation in California. Interest rate hikes are affecting private student loans, adjustable-rate mortgages, home equity lines of credit, and credit cards. For a first-time buyer that probably has other financial strains happening, alongside looking for a new home, the ability to start their buying journey may feel impossible. Current homeowners who have adjustable mortgage rates are also seeing their rates increase. If your credit score is on the lower side, you can expect to have hardships getting any sort of loan for buying a home. Banks are now being extra cautious about whom they are lending their money to and exactly how much they are lending. All these factors are going to affect the construction industry.
Currently, the demand for housing remains high. We can expect that prices will remain high until further notice. Businesses can also expect interest on their loans to continue to increase unless rates are fixed. Overall costs for business expenses and supply chain pressures continue to increase prices.
As pricing continues to increase, we can expect that fewer development projects will be pursued.
In the construction space, a recent article Inflation: The impact on the construction sector states, “Some contractors and developers are facing increased challenges to secure funding for projects amidst questions about the bankability of projects. In a high inflationary environment, funders will generally be more cautious when offering funding to projects that are high in value, complex, or have long build times.” The author, Kelly Outram, Head of Global Contractor Development, Marsh Specialty recommends “five actions developers should consider:
- Review project budgets against current pricing
- Discuss risk sharing with stakeholders
- Consider supply chain challenges
- Reassess your material procurement procedures
- Revisit insurance policies.”
Though much of the future inflationary impact on California residents and businesses seems unclear, it is predicted that the effects of these increases will be felt throughout the next few years. To read more about the effects of inflation in California read this blog post from the LA Times.
About Pro Engineering:
Pro Engineering has provided mechanical, electrical, and plumbing engineering design services in Orange and San Diego counties since 1995. During this time, we’ve established ourselves as one of Southern California’s best engineering consulting firms.
Our MEP engineering design team can help you prepare required construction documents for city or state submission for permitting. Even after plans are finalized, we continue to make adjustments and revisions per owner request, city plan check requirements, or to meet engineering goals. Projects can move fast, luckily, so can we.
For more information on how we can assist you with your next commercial construction project, contact us today.