Construction Slowdown Expected To Linger
A slowdown in new construction project spending posted in some categories earlier this year is expected to extend well into 2024, according to a new report from brokerage JLL.
“The construction industry is in a period of heightened activity but financing constraints have driven a rapid decline in construction starts over the last quarter,” JLL researchers said.
Financing could pose upcoming challenges even to relatively active project categories including apartments, manufacturing and public infrastructure, as interest rates peak near year-end 2023 and cause slowdowns in construction starts to linger well into 2024.
Researchers cited trends including plummeting demand for construction loans during the second quarter as lending standards continued to tighten. Contractors also face persistent challenges finding qualified workers for projects, keeping labor costs elevated.
Construction material cost hikes have moderated from the early months of the pandemic, but prices remain high by historical standards. Supply pressures remain for items such as lumber, due to factors including this year’s Canadian wildfires which have reduced wood supplies.
“Steel, concrete, glass and plastic product price movements are all above historical levels,” JLL researchers said. “Although these movements are smaller and less consistently upward, global events and policies may drive costs up or increase the extent of price movements once again.”
Student Housing Investment Rises
Private investment in student housing has increased this year as colleges returned to full in-person schedules, according to a report from the National Association of Home Builders.
Citing Commerce Department data, the trade group said private fixed investment in student dormitories reached $3.6 billion in the second quarter, up 1% from the prior quarter and 8.7% from a year earlier. Spending was below the pre-pandemic level but signaled steady recovery after construction slowed considerably during 2020 and 2021.
“In-person learning requires college students to return to campuses, boosting the student housing sector,” NAHB Senior Economist Na Zhao said in a statement.
The trade group said private investment in student housing surged in the first years after the Great Recession as U.S. college enrollment grew from 17.2 million in 2006 to 20.4 million in 2011. Investment was disrupted when COVID-19 interrupted normal in-person campus learning modes and students took many classes from home with technology allowing remote learning.
U.S. college enrollment fell by an annual rate of 3.6% in fall 2020 and dropped 3.1% in fall 2021 but has since headed back up, according to the National Student Clearinghouse Research Center.
Mortgage Rates Decline
Mortgage rates dropped slightly in the latest weekly lender survey by Freddie Mac, but prospective homebuyers including apartment renters were still faced with rates that remained near 20-year highs at more than 7% for 30-year loans.
The government-backed lending agency said 30-year, fixed-rate mortgages averaged 7.12% for the week ended Sept. 7, down from the prior week’s 7.18% but well above the average 5.89% in the corresponding week of 2022. The average for 15-year, fixed-rate loans was 6.52%, down from 6.55% in the previous week but higher than the year-earlier average of 5.16%
“For the fourth consecutive week, the 30-year fixed-rate mortgage hovered above 7%,” Freddie Mac Chief Economist Sam Khater said in a statement. “The economy remains buoyant, which is encouraging for consumers. Though while inflation as decelerated, firmer economic data have put upward pressure on mortgage rates which, in the face of affordability challenges, are straining potential homebuyers.”
Among other fallout from high rates, mortgage application volume hit a 27-year low in the latest weekly tracking by the Mortgage Bankers Association.
