Optimism prevalent across sectors, regions

By |  May 4, 2017

Construction activity remains strong with all segments contributing to the improvements.

Residential is excellent but growth is hampered by too few qualified buyers. This will not change unless there is a policy shift to make mortgage qualifying easier, which we do not anticipate happening because of the 2006-2010 housing bust experience.

What is happening in many markets is price compression, which we define as prices moving up at the low end while prices at the high end are flat or down. As prices continue to move up and with mortgages moving higher, the beginning of a housing top is getting close.

Nonresidential continues to improve slowly. The slow but steady growth in employment has reduced vacancy levels enough to justify higher construction contracts, but not by much. The structural changes in retail are reducing the demand for new retail space, and technology is reducing the square feet required per worker. In combination, it means small gains in nonresidential except in rapid growth areas.

The excitement is moving toward the nonbuilding segment. The political winds have shifted to favor higher spending just as government tax receipts are back to high levels. Translating the desire into actual spending is the challenge as stakeholders all line up for any new tax revenue. A near-term test of how strong the desire is is in California. The fate of a major increase in funding for roads will be known as this issue goes to press.

Regionally, the Southeast, the West and some parts of the Midwest are gaining strength. The energy belt is turning the corner as prices are slowly moving upward. Where energy development costs are low, activity is already picking up. The current improvements in consumer and business confidence will yield real business results if policy changes follow. If tax and health policies do not change, the wind will die down and slow growth (or declines) will return.

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