Fall 2024 Construction Insurance Forecast

After months of apprehension, the projection for construction has turned. In this installment, we’re going to focus on three areas contributing to our positive stance: the changes to single-family permit and start activity, and their impact on builder confidence, how a seemingly sluggish multifamily market may evolve to highlight demand, long-awaited changes to the Federal Reserve’s target rate and what it will mean in 2025.

Single-Family Permit / Start Activity and Builder Confidence

Single-family starts rose 15.8% in August, the first improvement in six months. This is primarily fueled by lower mortgage rates and the anticipation of the Fed beginning to ease rates.

This gain in single-family starts has contributed to an annual increase of 3.9 in overall starts year to date – which is the first year-over-year improvement since April.

As of mid-September, the 30-year fixed mortgage rate average is 6.2%. This is down from early July, and the lowest rate we have seen in 19 months.

After four months of declining builder confidence, we’re seeing light at the end of the tunnel. September saw a two-point uptick thanks to a second consecutive month of increased permit activity. In fact, all three components of builder confidence increased, with the largest increase coming from sales expectations over the next six months.

Multifamily Market

We continue to watch the multifamily market closely as newly completed projects continue to come online. Though we saw some improvement in August, this market is looking for some balance as multifamily starts are still down 30% year to date.

Multifamily permits saw a second consecutive month of growth in August, but remain weak overall. This is primarily due to large number of projects already under construction.

In fact, multifamily completions in August rose to the highest level on record since 1985. When these units are complete in the coming months, we should get a better idea of the demand for multifamily housing.

Federal Reserve Rate Changes

And now for a change that’s months in the making: The Federal Reserve slashed the target rate by half a point. While a reduction was highly anticipated, many experts expected a more conservative quarter-point decrease. As pressure from inflation has slowly decreased and job gains have begun to slow, a reduction seemed inevitable.

Many believe the Fed chose the larger decrease to ensure a soft landing for inflation and the economy. But, this larger reduction may be a lesson learned following the delay of raising rates.

As always, there are a lot of moving parts that directly impact the construction industry. However, lower lending costs coupled with unparalleled demand can only bolster single-family construction. This expected growth and completion of multifamily projects will generate a surge of commercial expenditures. Community developments create the need for new support services and amenities to attract new residents. In all, insurance agents will have more business opportunities in both personal and commercial lines segments.

While our outlook has been primarily positive all year, we’re excited to see some long-awaited economic tailwinds in our forecast, and are bullish on the growth we expect looking into 2025.

This is intended as a general description of certain types of insurance and services available to qualified customers. Any description of policy provisions is meant to give a broad overview of coverages and does not revise or amend a policy. Refer to the policy coverage form for a complete representation of the scope of coverage, terms, conditions, exclusions and more. The policy is the contract that specifically and fully describes your coverage. Some products may not be available in all states and may only be offered on a non-admitted basis. Product availability is subject to change.

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