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How Deflation Affects Construction & Contractors

Example for deflation from Contractor Rx
Deflation in construction

The Irish have an old toast "May you be in heaven a full half hour before the devil knows you're dead."

Unfortunately Main Street and Wall Street are similar to this Irish message of getting the jump. For a large portion of American homeowners, specifically 23.5% have a mortgage below 3%. Additionally, 40% no longer have or never had a mortgage on their home. The savior in construction has been lending and access to capital with residential and commercial real estate. With rates being up to over 10% in the commercial space there is a very real upcoming wave of concern for deflation.

Financing as discussed, becomes much more difficult to obtain for either client or contractor. Less financing options equals less work. Less work can sometimes be a good thing if it has higher margins and your personal time is imporant to you (and it should be a top priority). Less work then yields the same amount of contractors looking for the same competitve market share and in turn, drives prices down. The real danger hasn't even been realized yet.

The bigger threat to contractors is when deflation happens to drive margins and top line revenue down IMMEDIATELY after costs have just skyrocketed from the previous inflation. This is the opportunity however. Hidden within this window is where the money is made. When others are getting out or getting fed up, their assets can be acquired for twenty cents on the dollar. When this becomes a large problem nationwide after months and quarters of aggregate defaults, banks then take thirty to seventy cents on the dollar. You can essentially acquire a competitor for nickels. This is already happening and is certain to coninue throughout most of 24.. You will keep hearing from the media "Soft landing". Just remember when these experts and panels told you inflation was "transitory" and was suppose to wrap up by end of 2022. The eonomy seems to make at least a slight comeback in an election year. A deflation is imminent and follows every inflation cycle.

It's your job to be prepared. If you don't know how, reach out to us.


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