New construction starts expected to rise 6 percent in 2013

New construction starts are expected to rise 6 percent this year to $506 billion, according to the Midyear Update to the 2013 Construction Outlook from McGraw Hill Construction, a division of McGraw Hill Financial. This forecast follows an 8 percent gain in 2012 and is the same rate of increase for total construction starts predicted in October 2012.

"The recovery for construction continues to unfold in a selective manner, proceeding against the backdrop of the sluggish U.S. economy," says Robert A. Murray, vice president of economic affairs for McGraw Hill Construction. "While the degree of uncertainty affecting the economy seems to have eased a bit from last year, tight government financing continues to exert a dampening effect on the economy and the construction industry.

"On the positive side for construction, the demand for housing remains strong; market fundamentals for commercial building are strengthening; and lending standards for commercial real estate loans continue to ease gradually," he continues. "On balance, the recovery for construction is making progress, but at a single-digit pace given the mix of pluses and minuses by major sector."

Following are the main points by sector for the 2013 construction market:
  • Single-family housing will increase 28 percent in dollars, corresponding to a 24 percent increase in the number of dwelling units to 640,000. The inventory of new homes for sale is currently low, which should spur more construction, and home prices are rising. The recent increase in mortgage rates has caused concern, but rates remain near historic lows and have not significantly affected affordability for most potential homebuyers.
  • Multifamily housing will increase 23 percent in dollars and 20 percent in units, helped by the gains reported for occupancies and rents during the past year. Major metropolitan areas, such as New York, continue to see groundbreaking for large apartment projects and large condominium projects.
  • Commercial building will increase 15 percent after the 11 percent increase reported for 2012; however, this year's level of activity in dollar terms still will be 39 percent less than what was reported during the 2007 peak year. The pace of store construction is picking up, joining earlier gains registered by warehouses and hotels. The increase for office construction will remain relatively modest in 2013 as more privately financed office projects are countered by fewer government office buildings.
  • The institutional building market will fall an additional 5 percent after falling 10 percent in 2012. Although state fiscal health has shown some improvement, state and local budgets remain tight, further dampening school construction. Uncertainty regarding hospital mergers and the implementation of the Affordable Care Act is restraining construction of health care facilities.
  • The manufacturing building category will decrease 8 percent as firms refrain from plant investment because of the sluggish U.S. economy and slow export markets.
  • Public works construction will increase 3 percent, helped by growth for highways and bridges. The transportation sector largely was exempt from the federal spending cutbacks during the sequester, and there currently are a number of large bridge projects reaching the construction start stage.
  • Electric utilities will decrease 40 percent following the record high achieved in 2012, which included the start of two large nuclear facilities. With new generating facilities emerging and capacity utilization rates dropping, downward pressure on new power plant construction is predicted for the near term.

Date : 8/20/2013