If you’re underwriting a deal this month, stop and run your numbers again. The cost side of your pro forma just moved against you, and it moved fast.

The number that matters: Construction input prices rose 2.6% in May and are up 9.6% year over year — the fastest annual increase since the pandemic, according to ABC and AGC data. That’s not noise. That’s a trend line every multifamily and CRE developer needs to underwrite around, not hope around.

Where the pressure is coming from:

Iron and steel: up 1.4% month over month, 7% year over year

Copper wire and cable: up 7.3% in May alone, 24.2% over the past twelve months

Energy and commodity markets, with ABC Chief Economist Anirban Basu flagging oil prices tied to the conflict in Iran on top of persistent tariff effects on key materials

Here’s the part that should actually keep you up at night. AGC Chief Economist Ken Simonson points out construction input prices are climbing at more than double the 4.2% rate of general consumer inflation. That gap is the whole story. Your costs are running away faster than your rents, your sale prices, or your ability to pass anything through to an owner. Margins don’t get squeezed by inflation — they get squeezed by this kind of inflation, where your inputs outrun your outputs.

My read, after 25+ years doing this: Contractors are telling pollsters they expect margins to improve over the next six months. I’d treat that as optimism, not a forecast. Basu’s caution is the right instinct — sustained material inflation stacked on top of where borrowing costs sit right now is exactly the combination that erodes profitability and slows starts. I’ve underwritten through enough cycles to know that when steel, copper, and financing costs all lean the same direction at the same time, that’s not a headwind you manage at the margin. That’s a headwind you build your whole capital stack around.

What this means for your next deal:

Re-run material assumptions before you finalize any budget locked more than 60–90 days ago

Push harder on guaranteed maximum price contracts and material price locks where you still have leverage

Stress-test your spread between construction cost escalation and your exit rent or sale assumptions — don’t assume the gap closes on its own

If you’re entering 2026 with a marginal deal, this is the environment where marginal deals become losses

Disciplined underwriting isn’t a slogan right now — it’s the difference between developers who get through this cycle and developers who get caught in it. Build the cost side of your model like steel and copper keep climbing, because right now, that’s exactly what the data says they’re doing.

— Daniel