Expert Insights: An Update on the Construction Market
From Director of Construction, Chris Gellner
It seems as if just a few short years ago, we were in a pre-covid world with a very stable construction equipment market that was chugging along nicely. Equipment was readily available, values were at a reasonable price, and interest rates were in everyone’s favor; how things have changed! Over the past three years, we have seen record-high fuel prices, equipment shortages that have driven the market to unprecedented record prices, and interest rates that have started to climb but even with all of this happening, we seem to have settled into what the “new norm” will be at least for the foreseeable future.
Current Construction Market
Even though it’s early in the year, our crystal ball tells us that the first half of 2023 is setting up to be a mirror of 2022, which is a good thing if you’re a seller. Although interest rates have risen drastically over the past six months, we have not seen equipment values decline as expected. This is most likely due to the absence of equipment in the marketplace. “People have changed their buying habits,” says Travis O’Leary, Steffes Colorado Regional Manager. This means customers who used to buy new are looking at low-hour late model used equipment instead. Usually, these customers are willing to spend a little more money to get what they want, which pushes the regular buyers of that equipment down a tier, and it becomes a cascading effect for everyone looking at equipment at a specific dollar figure which makes it a seller’s market.
The mid-range size construction equipment has been absolutely on fire over the past 12 months with no end in sight. OEMs have listened to customers as times have changed, and they have realized that the days of the large machine are starting to go by the wayside. A fleet of small to midrange machines is more appetizing to a larger group of customers as these machines can be used in many more applications and cross a much larger sector of industries in those applications.
The transportation market has also been a hot topic as of late. With a slight decline in OTR truck prices in the second half of 2022, there is much caution going into 2023. Although there has been a decline, it is not as drastic as some make it seem if put into perspective. There have been value increases of over 100% on some OTR trucks over the past 24 months, so does a decline of 20-25% show a market that is in decline or just a slight correction in some of the insanity that has been happening in truck values? You be the judge. Heavy spec trucks keep slowly climbing as availability is scarce and will most likely continue as new units are 6mo to a year out.
History tells us that the bubble has to burst at some point, and some say it will be the end of 2023, but I don’t foresee that happening. Even if OEMs decided to ramp up production to record levels, it would take a year to fill all current standing orders and at least another year to get dealer lots back to having an acceptable inventory. This gives us good reason to be cautiously optimistic that the construction equipment market will remain strong through 2023 and the auction method of Marketing will continue to flourish.