Coming off a year of challenges in 2023, the new year brings some optimism that the construction industry outlook is on the rebound. As predicted at the end of the last turbulent year, December brought some positive changes in overall outlook for new construction moving forward.
Mortgage Rates Drop
The 30-year mortgage rate dropped below 7% for the first time since August and steadily decreased throughout December. This also led to a slight improvement in the HMI (Housing Market Index), which jumped up 3 points to 37. This is notably the first increase in the index reading since June.
Home Sales Outlook Improves
Projected single family sales over the next 6 months took the biggest jump, rising 6 points to 45. The traffic of prospective buyers score has also risen 3 points, to 24. This likely correlates to price mortgage decreases, and we could be seeing the stabilizing of home prices. The median home price for December registered at $312,953, an increase of 0.17% over last month and the first monthly increase of less than 0.2% all year. As a whole, permits remained relatively flat month-over-month, as did units under construction.
2024 and 2025 Construction Industry Outlook
The NAHB Executive Forecast increased their final year-end single family count to 927, up 1.75%. The outlook still predicts single digit growth for 2024 (approx 3.34%) and then more significant growth into 2025. According to NAHB Chief Economist Robert Dietz, “NAHB forecasts an approximate 4% gain for single-family starts in 2024, as mortgage rates settle lower, economic growth slows and inflation moves lower.”
Regulatory Burdens Remain
A recent LBM Journal article notes that single-family builder sentiment has diverged somewhat from recent starts/permits data. NAHB analysis shows that temporary and outsized differences between builder sentiment and starts occur after short-term interest rates rise dramatically. This results in increasing land development costs and builder loans used by private builders. In turn, higher financing costs for home builders and land developers add another headwind for housing supply in a market already low on resale inventory. The article goes on to say that state and local governments could help spur new home production by reducing regulatory cost burdens on land development and building. We are hopeful that these adjustments will occur at the local and state level, bolstering a positive construction industry outlook.
Optimism for 2024 and Beyond
As the new year begins, we should look to the future with optimism. While struggles like labor and land issues do persist, market growth looks to remain healthy. Belco Forest Products is no stranger to weathering downturns in the construction industry and is keeping track of 2024 lumber price forecast models. With confident determination and informed projections, we will continue as always to move forward successfully alongside our outstanding trade partners!