Spring 2024 Construction Forecast

Spring 2024 Construction Forecast

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2 min

While the Federal Reserve didn't lower rates at its March meeting like many sources predicted, their comments do indicate economic activity has been expanding at a solid pace.

Though we have seen some inflation easing over the most recent 12 months, it still remains elevated. So the Fed continues to hold the line as it targets a 2% rate of inflation

Despite this environment with elevated rates, many positive trends are starting to emerge. We're going to address five of them now.

First, year over year, new home sales were already up 6% through the end of February. That's a hot start for the beginning of the spring selling season.

Second, single-family permits are also well ahead of last year's pace and up about 25% from the low point reached in November of ‘22. This places the annual pace above 1 million units, which is above pre-pandemic levels we saw in 2019. From our perspective, the fourth quarter of 2019 was the start of a true resurgence in single-family construction.

While the pandemic certainly slowed that progress returning that level is a solid indicator of what's to come.

Third, mortgage applications have risen 18% over October 2023 low, suggesting we've already seen the lowest sales pace.

Next, home price appreciation has begun to settle. While still increasing, it seems to have moderated, making homes more affordable.

Lastly, housing supply has improved coming into 2024. While inventories still remain low, there are outpacing ‘23 and turning close to the levels we saw in ’22.

As we think about a potential dip in mortgage rates, we can only anticipate an amplification of these five positive trends.

That's not all the good news for the construction market.

A large number of millennial buyers -- who are now in their prime homebuying years -- are seeking homeownership, especially relative to hybrid work and suburban life instead of the city.

This demographic shift after the pandemic sets the stage for increased investment in suburban restaurants, retail hotels and a myriad of other commercial developments to support these growing communities. These establishments will attract even more residents and reinforce the demand for new housing.

All told, we still maintain a highly favorable outlook for single-family construction in ‘24 and expect even greater things moving into ’25 as new commercial construction begins to chase the run up we saw on residential construction.

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