Summer 2024 Construction Forecast

Summer 2024 Construction Forecast

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3 min

2024 started with a lot of optimism for an easing of inflation, downward mortgage rate movement, and highly anticipated soft landing for the US economy. But, the actual trends have created greater challenges than we expected.

For this Outlook segment, we're going to look at three topics: how inflation is deviating from expectations, the ripple effect we're seeing in builder confidence, and what's giving us enthusiasm for the upcoming months and the meaning for your business.

Inflation

While we have yet to see the Fed's target rate of 2%, there has been some relief from inflation. In May, we saw a rate of 3.27%, which is a 4% improvement over the same month last year. This number is also slightly below the long-term average of 3.28%.

This persistent stall in the 3% range means that despite early predictions of multiple reductions by this point in 2024, the Fed is holding steady with no rate movement, and its impact is reflected in a number of key areas.

Builder Confidence

While demand for housing remains intact and single-family starts and expenditures are maintaining healthy levels, builder confidence declined in June. All three of its components fell below 50 for the first time since December of ‘23.

1. Current sales conditions fell three points to 48.
2. Expected sales in the next six months dropped four points to 47.
3. Traffic of prospective buyers fell two points to 28.

At an overall rating of 43, we're significantly ahead of the single-digit indexes of ‘08 and ’09, as well as late ‘22 and ’23 when levels were in the mid 30s. Many feel this dip in confidence is driven by the need to lower prices in order to attract buyers in this high interest rate environment.

Why We're Optimistic

Minutes from the Fed's June meeting signaled relief may be on the way. Specific comments were made with respect to continued expansion of economic activity at a solid pace and ongoing strengthening of the job gains, with some recognition of downward movement toward the 2% target. They were all seen as positive indicators that we will see some rate relief.

Many experts are projecting downward movement at the September and December meeting, so we expect improvements in builder confidence to follow.

While much of this outlook focuses on current challenges, it's important to note that overall construction is defying the Fed's restrictive monetary policy. According to Wells Fargo, construction activity continues to expand at a strong rate, with total private construction spending up 10% on a year over year basis as of April.

We've seen improvements in both residential and nonresidential expenditures, which were up 8.1% and 11.5%, respectively. As the construction sector thrives despite significant market headwinds and some negative headlines, we have great optimism approaching 2025.

These economic improvements lead to even greater demand in residential and commercial builders of insurance. So, when you're thinking about new business opportunities, construction is an area to take advantage of.

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