2019 Construction Outlook — Holding Steady

As we start 2019, the question on most contractors’ minds is, “How much business can I expect this year?” While economic conditions are in flux, the short answer is “about the same.”

The construction industry estimated a respectable $807 billion in construction starts in 2018. That said, economic growth won’t be as strong in 2019, as we will begin to see a decline in tax cut benefits. In addition, short-term interest rates will rise as the Federal Reserve continues to move toward a more neutral policy, while long-term interest rates will rise in anticipation of higher inflation.

No, the picture isn’t quite rosy, but the sky isn’t falling, either.

Overall, Dodge Data & Analytics, a leader in construction industry forecasting, reports that total U.S. construction starts for 2019 will hold steady at about $808 billion, keeping on par with 2018’s numbers.

Here’s a breakdown of expectations and trends:

• Residential — For 2019, the single-family market will remain relatively unchanged, other than a slight, 3 percent drop in new home construction. In addition — as a result of rising interest rates, lower affordability and fewer ownership incentives resulting from recent tax reforms — we will see a small decline in homebuyer demand.

  Slightly more extreme, multifamily housing is expected to slide 6 percent in dollars and 8 percent in units, according to Dodge. Key indicators, including occupancy rate and rent growth, displayed a limited downturn prior to 2018, which halted last year as a result of a stronger economy. However, that decline is anticipated to resume this year.

• Commercial — According to Dodge, this segment is predicted to fall 3 percent, following slight gains in 2017 and 2018. While the 2018 market for offices and warehouses were in good shape, 2019 vacancy rates are expected to rise as the economy slows, somewhat reducing construction. Hotel construction is expected to back off from its recent strength of the last few years, and store construction will experience further weakness as the dominance of online shopping continues to impact traditional retailers.
• Green Building — While it appears that sustainable construction is keeping in line with other markets, the higher associated costs continue to be a concern for some. One factor that provides a bright spot is the fact that millennials are now entering the housing market and are currently the largest population of first-time homebuyers. This new generation of homeowners considers sustainability and the use eco-friendly materials more than a worthy investment so keep this demographic in mind as we move further into 2019.
• Remodeling — After several years of strong growth in home improvement and repair, spending is expected to soften in 2019, according to the Leading Indicator of Remodeling Activity (LIRA). That said, it appears there will also be an increased demand for home updates as the year wears on due, in part, to the fact that people are living in their homes longer than previous generations and, therefore, spending more on remodeling. In addition, key market indicators — such as home prices, permit activity and retail sales of building materials — continue to strengthen and are expected to support above-average spending gains in spending. Through the third quarter of 2019, annual expenditures for residential improvements and repairs by homeowners is still expected to grow to more than $350 billion nationally.

In the end, it appears 2019 will be a year of holding steady in the contracting industry. At Dunn-Edwards, our R&D teams are continually improving our paints and primers, and our sales specialists strive to provide you with superior support and service. We thank you for your business wish you a prosperous New Year!

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