Construction Cost Forecast 2027: Materials, Labor & Rates

Construction Cost Forecast 2027: Materials, Labor, Interest Rates and Sector Outlook

By Virginia Viadas

Quick answer: Construction costs are expected to keep rising into 2027. As of August 2026, construction input prices were up 8.9% year over year, according to Associated Builders and Contractors (ABC). Iron and steel, softwood lumber, switchgear and copper wire were each up more than 10%. Mortgage rates passed 7% in September 2026. Spending, however, is expected to recover modestly: the American Institute of Architects (AIA) Consensus Construction Forecast projects nonresidential building spending to fall 0.3% in 2026 and rise 3.0% in 2027. Data centers are leading that growth. For 2027 budgets, Construction Supply Magazine recommends planning for continued cost escalation rather than relief.

Key numbers for 2027 planning

Will construction material costs go up in 2027?

All signs point to yes. ABC's analysis of August 2026 Producer Price Index data found prices rising across most material categories. ABC Chief Economist Anirban Basu said ongoing input price escalation is likely to squeeze contractor profitability in the coming months. He pointed to the escalating trade dispute with Canada and oil prices back above $100 a barrel as added pressure.

The materials to watch most closely in 2027:

1. Steel and aluminum: up more than 10% year over year and directly exposed to Section 232 duties.
2. Copper wire, cable and switchgear: up more than 10%. They drive electrical costs and data center budgets.
3. Softwood lumber: up more than 10%, with Canadian duties still the main factor. See our lumber prices 2026 guide.
4. Cabinets and vanities: covered by phased tariffs. See lumber and cabinet tariffs 2026.

For the full tariff picture, see our complete guide to U.S. construction material tariffs and our explainer on the July 2026 switch to Section 301 tariffs.

Which construction sectors will grow in 2027?

The AIA panel describes the nonresidential market as "K-shaped." Sectors tied to public funding, healthcare and AI investment are growing, while rate-sensitive sectors stall.

Source: AIA Consensus Construction Forecast, July 2026. The panel includes AIA, Dodge Construction Network, Moody's Analytics, FMI, ConstructConnect, ABC, Wells Fargo Securities, Markstein Advisors and Piedmont Crescent Capital.

The data center boom is the single largest driver of commercial growth. Our analysis of data center construction costs in Silicon Valley shows how those projects compete with every other sector for electricians and electrical equipment.

What is the 2027 outlook for residential construction?

Residential is under more pressure than commercial:

1. Rates are moving the wrong way. Freddie Mac's 30-year fixed averaged 7.03% on September 24, 2026, up from 6.30% a year earlier. That was the first reading above 7% since early 2025, after the Federal Reserve tightened policy in September.
2. Single-family starts. The Farnsworth Group expects single-family starts to decline again in 2026 and rebound only mildly in 2027 as financing improves.
3. Remodeling is cooling. Harvard's JCHS projects homeowner improvement and repair spending of about $519 billion through mid-2027, with growth slowing to 0.5%. The next update is scheduled for October 22, 2026.
4. Small builders feel it most. In NAHB's July 2026 survey, builders starting five or fewer homes reported median material cost increases of 9.1%, compared with 1.8% for builders with 100 or more starts.

For the broader picture, see our 2026 housing market outlook.

Will labor costs rise in 2027?

Labor remains the tightest constraint. Data center metros are pulling electricians, plumbers and specialty trades away from other work. That raises wages and stretches schedules everywhere else. Our construction labor shortage 2026 report breaks down the gap by trade and region. Automation is starting to fill some gaps, as our analysis of robotic bricklaying costs vs. manual crews shows, but not fast enough to offset the shortage in 2027.

How should contractors and owners budget for 2027?

1. Add escalation contingency. With input prices up 8.9% year over year, a 5% to 10% escalation allowance on materials is prudent for projects starting in 2027.
2. Use escalation clauses. Tie them to a named PPI index. Our guide to construction escalation clauses explains what holds up.
3. Buy long-lead electrical gear early. Switchgear and transformers have the longest lead times and fastest price growth.
4. Verify country of origin. Tariff exposure now depends heavily on where a product is made.
5. Watch the next data releases: monthly BLS PPI (analyzed by ABC), the JCHS LIRA on October 22, 2026, and AIA's January 2027 Consensus Forecast.

For the long-run context behind these numbers, see U.S. construction industry statistics 2026.

Frequently asked questions

Will construction costs go down in 2027?
Unlikely. Construction input prices were up 8.9% year over year in August 2026, and tariffs on steel, aluminum, copper and lumber remain in place. A meaningful decline would require tariff relief or a sharp drop in energy prices.

What is the construction spending forecast for 2027?
The AIA Consensus Construction Forecast projects nonresidential building spending to grow 3.0% in 2027, after a 0.3% decline in 2026. Commercial spending, driven by data centers, is forecast to rise 5.8%.

Which construction sector will grow the most in 2027?
Data centers. The AIA panel forecasts data center spending up 25% in 2027, after 33% growth in 2026. Excluding data centers, commercial spending is forecast to grow only about 1%.

How will interest rates affect construction in 2027?
Rates above 7% raise construction-loan costs, reduce home buyer budgets and delay rate-sensitive projects such as offices, retail and speculative housing.

Should I build now or wait until 2027?
If the project is financially viable today, waiting rarely saves money in a rising-cost market. Lock material pricing and labor commitments as early as your financing allows.

Sources

• ABC, "Construction Materials Prices Jump Again in August" (Sept. 10, 2026), via R&R Magazine: https://www.randrmagonline.com/articles/92196-abc-construction-materials-prices-jump-again-in-august
• ABC statement on oil and Canada trade dispute, via NewsBreak: https://www.newsbreak.com/news/4885788987758-abc-sees-construction-material-prices-increase-in-august
• AIA, "July 2026 Consensus Construction Forecast": https://www.aia.org/resource-center/july-2026-consensus-construction-forecast
• AIA press release, July 21, 2026: https://www.aia.org/about-aia/press/uneven-growth-persists-across-nonresidential-construction-economic-uncertainty
• NAHB, "Smaller Builders Report Higher Material Costs" (Aug. 2026): https://www.nahb.org/blog/2026/08/building-material-prices-increasing-for-home-builders
• Freddie Mac, PMMS, Sept. 24, 2026: https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-average-703
• Harvard JCHS, LIRA, July 23, 2026: https://www.jchs.harvard.edu/press-releases/remodeling-spending-poised-further-slowdown
• The Farnsworth Group, single-family construction outlook (2026): https://www.thefarnsworthgroup.com/blog/outlook-single-family-residential-construction