Inside View: Construction Market Recap

We’ve taken a look at several construction sectors and the anticipated outlook for each based on a number of factors, including government, private, and consumer spending.

Single-Family Residential, Home Improvements

Higher federal interest rates and an elevated pace of inflation have prompted a tighter market for new single-family residential builds, according to the National Association of Home Builders (NAHB). The Fed expects to continue to raise interest rates in an effort to lower inflation, which impacts mortgage rates and housing affordability for many Americans. Building material costs in aggregate are up 20.4% over the last year and 31.3% since January 2020, says the NAHB. Although builders are set to have a strong earnings season, the current landscape will make it more difficult to raise home prices moving forward. The focus will be on how construction firms plan to navigate a potential drop in demand and higher materials and labor costs due to rising inflation.

On the renovation side, even amid labor and materials shortages and rising inflation, home improvement spending in the United States is expected to rise 20% to $427 billion from July to September this year, the highest rate in decades, according to Harvard University’s Leading Indicator of Remodeling Activity.

Utilities & Communication

With the passage of the Infrastructure Investment and Jobs Act, optimism in the underground markets is at an all-time high. The act is expected to result in more than $550 billion in new spending. Investing in power infrastructure, high-speed internet (5G), safe drinking water, and resilient infrastructure will all benefit the underground construction industry.

Spending on hardening the grid, the resiliency of our water supply, and real-time awareness of grid issues are critical areas of investment for utilities. A continued federal and state push to increase renewable generation as a percentage of energy supply will have an impact on the power and gas markets, too.

Water/Sewage & Waste Disposal

More than $100 billion in funding has been allocated for our nation’s water sources. Renewed private sector interest could also result in significant growth. Federal water infrastructure funding prioritizes boosting state revolving funds, accelerating lead line replacement, improving storage and drought resilience infrastructure, and addressing emerging contaminants.

Highways, Roads & Bridges

The Infrastructure Investment and Jobs Act provides the basis for Federal Highway Administration (FHWA) programs and activities through September 30, 2026, and will make a once-in-a-generation investment of $350 billion in highway programs. New programs under the act focus on rehabilitating bridges in critical need of repair, reducing carbon emissions, increasing system resilience, removing barriers to connecting communities, and improving mobility and access to economic opportunity.

Several of the markets anticipating the most construction activity in 2022 include Boston, Buffalo, Chicago, Miami, Phoenix, Austin, San Francisco, and Seattle, according to the National Center for Construction Education & Research.

Sources: NAHB, Harvard University’s Leading Indicator of Remodeling Activity, Bloomberg, FHWA