This graph indicates the average premium or discount at which an equipment type sells in each month, when compared to its overall average price across the calendar year.
Key Takeaways for Decision Makers
CONTRACTORS: There may be gains from planning your equipment buying and selling according to seasonal patterns.
FINANCE/INSURANCE: When evaluating an asset, make sure to look beyond the most recent market prices to avoid seasonal bias.
The seasonal nature of construction is well understood both by those within the industry and by outside observers – many in colder climates split the calendar into ‘winter’ and ‘construction season’. But does this seasonality trickle down to the market for used equipment?
An analysis of over 1.2 million online listings from 2012 to 2014 highlights a clear seasonality in pricing for the three most common types of earthmoving equipment: crawler excavators, dozers, and wheel loaders. These calculations suggest that for the equipment types studied, prices in the online resale market are higher during the summer months when construction activity is at its peak. All three categories average a price premium during the months of May, June, and August, while averaging a price discount during January, February, and November. Excavators demonstrate the most significant seasonality of the equipment types considered in this analysis, averaging an over 4% discount in both November and December, along with a nearly 5% premium in May.
These results likely reflect two complementary forces. Economic theory suggests demand for an input to production like construction equipment is derived from demand for its corresponding final product; high demand for construction output in the summer months as a result leads to a higher demand for equipment and thus higher prices. It is furthermore costly to own assets which are not actively being used, reducing the gains from purchasing equipment at a discount in the winter with intentions to utilize it in the summer.
There may however still be scope for wise asset managers to take advantage of these seasonal price variations, particularly if they enjoy economies of scale in equipment storage and overhead. If the price difference for an asset class between two particular months is greater than the overhead cost to store the machine (plus the opportunity cost of capital), it would be beneficial to “buy low” in the winter in anticipation of future use during construction season.