Construction Costs Climb as Contractor Backlogs Shrink

Construction material prices are up 7.4% from a year ago, and the pipeline of new work is shrinking fast — a combination that could keep new housing supply constrained even if mortgage rates eventually ease.

Why it matters: Housing affordability isn’t just about interest rates. If it costs more to build, builders build less, and constrained supply can keep prices elevated no matter what happens with borrowing costs.

By the numbers

• Construction input prices rose 7.4% year-over-year through July, per an Associated Builders and Contractors analysis of Bureau of Labor Statistics data.

• Iron and steel prices are up 17.6% year-over-year; copper wire is up 17.9%; softwood lumber jumped 6.4% in July alone.

• ABC’s Construction Backlog Indicator — a measure of contracted work not yet completed — fell to 8 months in July from 8.8 months in June, the steepest monthly drop since early 2022.

• Backlogs for data-center-focused contractors run over 11 months; for the 88% of contractors not building data centers, it’s just 7.5 months.

State of play: A dip in crude oil prices briefly eased the monthly cost increase, but that relief looks temporary — Brent crude is already up more than 5% since the start of August, and natural gas jumped 10% in July. Tariffs on imported materials like steel and copper are adding further cost pressure on top of the energy swings. ABC chief economist Anirban Basu said the boom in data center construction is masking real weakness elsewhere in the industry, particularly for small and mid-size contractors.

Zoom in: Other sectors are struggling too. Multifamily housing starts hit a 15-year low in the first quarter, and office construction, while up slightly this year, remains far below historical norms after record lows in 2024 and 2025. Overall nonresidential construction activity is running at roughly the pace it was recovering from the Great Recession in 2013, according to Wells Fargo economists.

What this means for you: If you’re waiting for mortgage rates to drop before building or buying new construction, rising material costs are a reminder that cheaper borrowing doesn’t automatically mean a cheaper home. Builders facing higher input costs and shrinking backlogs may be less likely to break ground on new supply, which keeps pressure on prices in tight markets. If new construction is part of your plan, it’s worth budgeting for the possibility that build costs — and therefore prices — stay elevated for a while. Copiafy’s goal tracker can help you plan a home-purchase timeline with some cushion built in for that uncertainty.

Bottom line: Even if rates ease, the cost of building enough new homes to fix the supply problem isn’t coming down anytime soon.

Sources: Associated Builders and Contractors — “ABC’s Construction Backlog Indicator Plummets in July”; Bisnow — “Contractors Feel Squeeze As Prices Rise 7.4%, Backlog Shrinks.”