What You Need to Know: Rising Trend in Construction Cost and Increasing Rate of Housing Loans

In the past few months, we have seen a continuous rise in interest rates because of inflation. While the government is doing its part in trying to save the costs of everyday life, we are still far from being able to quell the current rise in interest rates. This rise has affected many industries, including the construction and real estate industries.

While the rise of prices in goods and materials is more prevalent in the retail industry, those who are familiar with the dealings in the construction industry know that the continuous rise in construction costs will ultimately affect the housing and real estate industry in more ways than one.

Rise of Construction Costs

The continuous rise of construction costs makes it more difficult for construction projects to push through. It affects both the project timelines and budget.With a rise in the cost of materials, project managers will need to think of ways where they can adjust the budget so that their clients or investors will still be able to see the project through and have the structures finished.

Read More: Higher Material Prices: How Does it Affect the Construction Cost Budget?

Because of the rise in construction costs, more and more construction companies are finding it hard to maintain their clients while still being able to deliver quality products on the dot. Project managers and contractors now have to worry about maintaining a balance between the cost of materials, labor, and the clients’ budget.

As long as there is a rise in the interest rates of materials, there will be a continuous rise in construction costs as well. Project managers, construction, and clients should know that changes in the construction budget may also mean less demand in construction (because of the high prices), along with the impending threat of a downturn, ultimately affecting all parties involved. This downturn hints at either a shortage in materials, or the construction cost being too expensive for the customers to afford.

Increasing Rate of Housing Loans

To keep up with the inflation, the interest rate of housing loans will also increase at a pace similar to that of construction materials. Whether you are applying for a housing loan to build your own residence or a loan to buy a house, the increasing interest rate will affect you. While there are banking entities and organizations that offer a lower interest fee for housing loans, you might still want to take note that the loan might not cover the extra costs – especially if you are on a budget.

When applying for a housing loan, take into careful consideration what you will use the loan for as you might not use the loan for the entire construction project. Because of the interest rate hike in the first couple of quarters in 2022, the Bangko Sentral ng Pilipinas issued an alert earlier in the year that the interest rate hike might continue throughout the year to help quell the inflation.

When starting a construction project or looking to gain a housing loan, consider the possibility that you might need to adjust the budget – regardless of the amount that you can loan. This is to give a bit of allowance just in case you might need to spend more regarding the construction budget or if you are already looking to purchase a pre-existing home. There might be changes to the prices of materials and costs because of the rising interest rate, so it’s best to stay on top of things to complete projects.

It’s also advisable to consult with your respective agents and project managers to make sure that you are still getting your money’s worth regardless of the cost.

Citations:

• Construction Materials Retail Price Index in the National Capital Region (2012=100): February 2022 | Philippine Statistics Authority. (n.d.). Psa.gov.ph. https://psa.gov.ph/content/construction-materials-retail-price-index-national-capital-region-2012100-february-2022?fbclid=IwAR3p3llMiLvs3z_RzY3pnVf1mvBdiVue5-2_dmy4VdUm7A777fxmlr3QwcQ
• Rise in Material Costs and How they are Affecting the Construction Industry. (2021, August 4). Surety Place. https://www.suretyplace.com/rise-in-material-costs-and-how-they-are-affecting-the-construction-industry/
• Rising Material Prices Impact Construction Industry & Economic Progress. (n.d.). Georgia-Pacific Building Products. https://buildgp.com/blog-post/rising-material-prices-impact-construction-industry-economic-progress/
• Godlewska, K. (2021, September 23). Rising Cost of Materials in Construction—and How to Deal with It? Archdesk. https://archdesk.com/blog/rising-cost-of-materials-in-construction-and-how-to-deal-with-it/
• Tran, T.-U. (2021, June 24). Rising cost of materials means fewer contracts, smaller profits for builders, survey says | Federal Reserve Bank of Minneapolis. Www.minneapolisfed.org. https://www.minneapolisfed.org/article/2021/rising-cost-of-materials-means-fewer-contracts-smaller-profits-for-builders-survey-says
• Goodman, L., & Neal, M. (2022, May 2). How Higher Mortgage Rates Have Historically Affected Home Prices. Urban Institute. https://www.urban.org/urban-wire/how-higher-mortgage-rates-have-historically-affected-home-prices
• Nielsen, B. (n.d.). How Interest Rates Affect the Housing Market. Investopedia. https://www.investopedia.com/mortgage/mortgage-rates/housing-market/
• Fox, M. (2022, July 7). Rising mortgage rates are hitting Americans’ wallets. Here’s how to adjust your housing budget. CNBC. https://www.cnbc.com/2022/07/07/how-to-adjust-your-housing-budget-amid-rising-mortgage-rates.html
• Home Construction Loan in the Philippines | Ohmyhome. (2021, April 12). Oh My Home. https://ohmyhome.com/en-ph/blog/what-you-can-do-home-loan-philippines/