HARDI/ITR Construction Forecast Q2 2014 (Part 2)

Great Lakes Region

Housing permit authorization has weakened in the Great Lakes region with most of the area in a recession phase of the business cycle. Michigan permit authorizations are still growing but losing momentum. Home prices are rising at a slower pace in the Great Lakes and are likely to contribute to general weakness in construction for the second half, according to ITR. The ITR forecast for housing construction is -5.7 percent for 2014, followed by a surge to 21.3 percent in 2015 and 14.8 percent in 2016.

Commercial construction showed strong gains in April to May but ITR expects market gains to be short-lived with a mild decline in the second half of 2014. Kentucky and Ohio are leading the region in spending growth at 96.7 percent and 16.6 percent, respectively, on an annual basis, but the pace is not expected to last. The commercial construction growth forecast for 2014 is -0.8 percent, 18.9 percent for 2015 and 8.3 percent for 2016.

Central Region

Housing permits in the Central region climbed to the highest level in six years but the growth pace has been on a slowing trend since 2013. The business cycle is on the down slope with permit authorizations in Kansas, Wyoming and Nebraska down 17.5 percent, 8.4 percent and 3.1 percent, respectively. The rate of rise in home prices is also slowing in the Central region, except in the Dakotas, Wyoming and Colorado where prices are continuing to accelerate. The ITR housing construction forecast indicates a growth rate of -1.5 percent in 2014, with re-acceleration in 2015 to 21.4 percent followed by 17.9 percent in 2016.

Commercial construction, as of May, was 3 percent higher than last year but ITR says a transition into recession is expected in the near term. New commercial construction projects are becoming scarce except in Colorado and North Dakota which have seen an annual increase of 16.1 percent and 13.0 percent, respectively. Commercial construction spending is negative in five states of the region, although spending in Illinois, Iowa and Wyoming is growing at a faster pace. Weakening commercial construction activity is forecast for the most of the region in the second half of the year. The commercial construction growth forecast for 2014 is -3.9 percent, 7.6 percent in 2015 and 16.5 percent in 2016.

Southwestern Region

The sunny Southwest is burgeoning ahead in housing construction. Permits are in May rose to their highest level in 70 months and, with quarterly permits up 13.9 percent, more growth is anticipated. Texas and Oklahoma are leading the housing construction for the region while Louisiana is losing ground and is expected to move into a recession phase. Growth of home prices in the region is slowing, except for Texas where prices are accelerating. Housing construction is expected to grow in the second half of 2014 ending at 6.9 percent growth for the year, followed by 12.7 percent in 2015 and 10.9 percent in 2016.

Southwest commercial construction spending hit a high a five year high in May at $11.6 billion but the pace of growth has been slowing since July 2013. Spending is higher than a year ago in Oklahoma and Texas and in New Mexico where it continues to accelerate. ITR says commercial construction in Arkansas is poised to expand in the near term while Louisiana will see additional decline. The commercial construction forecast for the Southwest is 13.5 percent growth in 2014, 5 percent in 2015, and 10.2 percent in 2016.

Western Region

Housing permit authorizations are increasing at a slower pace in the West and are expected to maintain that trend into mid-2015. Home values rose on average 9.4 percent in the past year, making homes less affordable and putting the squeeze on new construction. Apartment rental prices have increased as available supply falls. Multifamily construction and renovation are expected to be areas of opportunity according to ITR. ITR forecasts slower growth for housing construction at 6.2 percent in 2014, followed by a flat period in 2014. The annual growth rate prediction for 2015 is 7.2 percent and 16.4 percent for 2016.

Commercial construction value in the West jumped by 50 percent last year and steady improvement is registering in most of the region in 2014. Only Idaho and Utah have year-over-year declines. New projects in Hawaii and California continue to strengthen construction activity. ITR says Western region growth may have reached its peak in May and will slow down for the rest of the year. ITR revised its year-end-growth rate from 7.4 percent to 11.8 percent in 2014. Milder activity is expected in 2015 with a growth rate of 4.5 percent followed by a surge in 2016 to 26.9 percent.