Construction kicks off in October, ‘too early’ to call it a trend

According to Dodge Construction Network, it was a strong month for housing starts in October, reversing from the previous month.

October’s gain is yet another sign that the construction sector continues to “weather the storm” of higher interest rates, said Richard Branch, chief economist for Dodge Construction Network, in prepared remarks.

Total housing starts rose 8% in October to a seasonally adjusted annual rate of $1.12 trillion; non-residential housing starts gained 9%; and non-construction housing starts increased by 26%.

Residential housing starts fell 3%.

Jeff Taylor, managing director of Digital Risk, said the key takeaway from the October homebuilding data is that there are a record 1.72 million homes under construction (928,000 multi-family units and 794 000 single-family dwellings).

Meanwhile, listings (of new and existing homes) are up 45% year over year, according to Realtor.com.

“This market dynamic puts buyers in a stronger negotiating position with sellers,” Taylor said. “Buyers also took their first rate cut of 2022 last week as a weaker consumer inflation report in October sent rates down from over 7% to around 6.5%.”

Year-to-date, total construction is up 16% in the first 10 months of 2022 compared to the same period of 2021. Non-residential building starts are up 37% in the year. he year, residential housing starts remained stable and non-construction housing starts increased by 17%.

Of note at Dodge, non-construction construction starts rose 26% in October to a seasonally adjusted annual rate of $277.7 billion. Highway and bridge starts increased 57%, while utility/gas plants increased 19% and environmental public works increased 13%.

The rise in non-residential housing starts is a “positive” sign

Turner Burton, president of Hoar Construction, told GlobeSt.com that while rising interest rates and ongoing pricing issues are weighing on some projects, he still sees strong fundamentals in key markets, particularly areas metropolitan areas of the Sunbelt which are the best prepared for bad weather. a recession.

“Steady and consistent job growth in places with diverse economies such as Nashville, Austin, Charlotte and Raleigh-Durham, is helping to offset slowdowns occurring in other parts of the country.

“It’s too early to tell if this is the start of a longer term trend nationally as we could likely see more highs and lows in the coming months, however, the fact that non-residential building starts are increasing significantly year over year is a positive sign for the industry. The extent of any slowdown that may occur will ultimately depend on where you live.

Ken Simonson, chief economist, The Associated General Contractors of America, told GlobeSt.com that the increase in non-residential building starts is consistent with the large number of auto and semi-automotive manufacturing plants. tall drivers who have been leading the way in recent months.

“Some of the increase in non-construction starts may reflect funds pledged by the enactment a year ago of the Infrastructure Investment and Jobs Act. The drop in housing starts corresponds to the sharp rise in residential mortgage rates; further declines in residential construction are very likely.

Powered by Federal Legislation

Brian Gallagher, vice president, corporate development, Graycor, told GlobeSt.com that despite the volatility, the industry appears to be weathering several storms.

“As construction inflation and rising interest rates create headwinds, we see continued activity in several sectors,” Gallagher said.

“Non-residential construction starts are being driven by investments in semiconductors, electric vehicles, data centers, manufacturing, clean energy and public infrastructure.

“Much of this capital investment is partly fueled by federal legislation and funding mechanisms and remains resilient to economic pressures caused by inflation and interest rates.

“Overall, most contractors are currently operating at full capacity with solid backlogs through early 2024. The commercial, institutional and residential sectors are beginning to show signs of weakening, as evidenced by a slight decline in backlogs entrepreneurs in these sectors.

The AIA’s Architecture Billings Index (ABI), released this week, showed the first decline in billings since January 2021.

“That could be an indication of a slowdown in demand,” Gallagher said. “Most contractors I speak with are cautiously optimistic about the construction economy going into 2023.”

Companies are finally making rental decisions

Steve Boulukos, President, COO JC Anderson, told GlobeSt.com that the volume of activity in the market in the last three quarters of this year is mainly due to companies and large companies being mostly idle to make decisions on leases.

“Companies were waiting as long as they could before deciding what they wanted to do with their current transactions and future planning that require a longer-term financial commitment in an uncertain economic and real estate market,” said Boulukos.

“Fundamentally, the spike we’ve seen is in many ways the result of companies no longer being able to delay decisions.

“While there has been an upward trend with more people returning to the office, the reality is that office occupancy rates in the Chicagoland area are only 50% of what they were before the pandemic.

“As major companies begin to announce workforce reductions, concern over what the second half of 2023 will look like in the construction industry is growing.”

Confusing and contradictory metrics

Justin Brown, chairman and CEO of Skender, said he sees confusing and contradictory metrics that make market conditions difficult to interpret for their impact beyond 2023 and 2024.

“Despite recession warnings and cautionary economic data, we have built a record 2023 order book. Smart builders, like Skender, are helping their customers mitigate economic and supply chain risks, said Brown.

“Yet the generally low confidence in the supply chain and the potential for recession and its unknown impact on the business make the future difficult to predict.”

He said that according to recent data, 2023 is expected to be Skender’s highest revenue year, with 2024 equaling or exceeding that.

“Lower stock markets and higher interest rates could prevent some clients from building in the short term,” Brown said. “With the long lead times required in construction, a recession in 2023 or early 2024 would likely not be felt in the industry until late 2024 or 2025.”

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