Higher Borrowing Costs Add Another Layer of Uncertainty

Construction financing just got more expensive. The Federal Reserve raised its benchmark interest rate by 25 basis points in September, bringing the federal funds target range to 3.75% to 4.00%, the first increase since 2023.

For construction, the impact could be felt most by projects already operating on tight margins. Higher rates immediately increase the cost of floating-rate construction loans and can weaken the financial feasibility of planned commercial developments. Projects that were barely on the boards may be delayed, scaled back or never reach the bidding stage.

The rate hike comes as contractors are already dealing with elevated material and labor costs. With financing and construction costs squeezing projects from both sides, accurate estimating and current cost data are becoming even more important as owners decide which projects move forward.