HARDI/ITR Quarterly Forecast Oct. 2017, Part 2

ITR looks at data using a 3-month and 12-month moving average to determine where business is within the growth cycle. Our last issue covered the general economic overview, as well as construction forecasts for the Northeast, Mid-Atlantic and Southeastern regions. Today, we will cover the Great Lakes, Central, Southwestern and Western regions.

Great Lakes

Housing permits in the Great Lakes region were up 2.6 percent year-over-year as of August, but slowing due to a contraction in multi-family permits. Except in West Virginia, home prices increased across the region, growing in the range of 4.4 percent to 8 percent and boding well for future housing activity. ITR expects housing construction to accelerate though early 2018 before declining into 2019. ITR forecasts positive growth for 2017, 2018 and 2019 at 6.1 percent, 0.3 percent and 1.8 percent, respectively.

Nonresidential construction spending dropped 14.4 percent year-over-year in the 12 months through August. The decline is expected to continue through the end of the year before rising during most of 2018. Government and medical construction were bright spots in the region, but are declining along with other construction sectors. ITR expects substantial growth in 2018 before contraction in 2019. The forecast for nonresidential construction is -20.9 percent for 2017, a leap to 23.6 percent in 2018, and then -3.2 percent in 2019.

Central

Residential housing permits are expected to plateau for the rest of the year before regaining some growth during 2018. Construction in 2019 will be split with declines in the first half and a rise in the second. Rising home prices throughout the central region should help encourage new construction. ITR forecasts a gain of 4.0 percent in 2017, up 4.3 percent in 2018, and then -0.4 percent in 2019.

Nonresidential construction spending was down 4.8 percent in the 12 months through August. Commercial, education and retail sectors are below their year-ago levels, while government and medical construction fared somewhat better. Wisconsin construction has been rising, but most of the region is in a slower trend. ITR is expecting nonresidential construction in 2017 to decline 2.2 percent from the prior year, but 2018 will see double-digit growth of 13.7 percent. The mild recession in 2019 will force construction levels lower to -6.3 percent.

Southwest

Housing permits were sluggish at a growth rate of 1.9 percent in August, but are expected to rise throughout 2018 and 2019, with a short period of decline in the first half of 2019. Housing construction may have a slow start in Texas as an aftereffect of Hurricane Harvey. Once insurance checks are issued, growth opportunities should take hold in the state. Home prices appreciated in most of the region in the second quarter. ITR expects rising prices, coupled with strong population growth, to spur real estate development. Expect gains of 9.6 percent in 2017, 4.8 percent in 2018 and 1.5 percent in 2019.

Nonresidential construction spending in the Southwest fell 12.9 percent year-over-year in August and is expected to continue its decline for the rest of 2017. Most construction sectors fell sharply in 2017 except government construction, which accelerated by 37.9 percent. Opportunities for HARDI members will be limited in the Southwest in the near term. The forecast for 2017 is -20.1 percent. Construction will pick up in 2018, ending the year up 14.6 percent and then slowing again through 2019 for a 7.3 percent gain.

West

Housing construction in the West accelerated during the first half of the year, and continued permit growth is expected into late 2018. Single-family housing starts are showing strength in the region. The fires in California may negatively impact the forecast, but as Californians begin rebuilding, permit authorizations should increase. Home prices rose across the region in the second quarter except for Alaska, which dropped 0.3 percent. Permit authorizations were stronger than forecast in June, causing ITR to revise upward its forecast for 2017. Permit levels for 2018 and 2019 were adjusted downward by 0.8 percent and 3.2 percent, respectively. The three-year housing forecast calls for a 6.9 percent increase in 2017 followed by a gain of 5.6 percent in 2018. The forecast falls to -1.6 percent in 2019.

Nonresidential construction spending in August slid 17.5 percent from year-ago levels, but improvement is expected through 2018. Commercial, medical and retail construction sectors are down more than 30 percent each. Education and government construction were accelerating, but have slowed in recent months. ITR expects the expansion in housing permits to contribute to stronger nonresidential construction in the region. Nonresidential construction is forecast to end 2017 down 7.9 percent. Accelerating growth of 14.1 percent is predicted for 2018, followed by a softening in the first half of 2019, for a yearly increase of only 5.0 percent.