2013 State of the Industry Report

For 2013, expect more of the same. The highway bill, which has funding available for 27 months, will defray some of the uncertainty, but larger highway and bridge projects require more time for planning. A 60-month bill would have been much preferred.

Regarding the future funding of highway projects, as vehicles use more alternative energy and less gasoline, dollars generated by the gas tax will have to be supplemented by other means.

Ken Simonson, chief economist, Associated General Contractors of America (AGC): According to U.S. Census Bureau data released on October 1, highway construction spending in the first eight months of 2012 was 4.5% higher than in January-August 2011. However, the Federal Highway Administration reported on October 23, that its National Highway Construction Cost Index — a weighted average of all bids on state highway projects — rose 7.3% from the second quarter of 2011 to the second quarter of 2012.

In other words, bid prices rose faster than total spending, implying that there were fewer projects this year. Going forward, it appears that funding from all levels of government — federal, state and local — will be close to 2012 levels, meaning even fewer projects than before if bid prices continue to recover.

Building construction

ET: What level of growth do you foresee in new construction for both the residential and nonresidential markets in 2013? Do you see credit easing?

David Crowe, chief economist, economics and housing policy, National Association of Home Builders (NAHB): Total housing production will increase by 20% in 2013 over 2012 levels. The total production will be around 900,000 units, comprised of 665,000 single-family homes and 240,000 multi-family apartments. Credit remains and will continue to remain a hindrance to a full housing recovery.

Credit is tight for both builders and buyers. Builders borrow from small community banks. Many of these institutions remain under tight regulatory control by federal banking regulators who have refused to allow prudent lending in housing markets that are seeing recovery. As a result, the inventory of unsold new homes is at its lowest level in almost 50 years.

Home buyers also face unusually tight lending restrictions that have left many waiting. Qualifying credit scores are higher than they were before the boom and down payment requirements have reduced the share of first-time home buyers able to get into the market.

IHS: Residential construction spending is forecast to increase 6.6% in real dollar terms in 2013. This sector is beginning to see the release of pent-up demand due to underlying demographic factors — population increases, several years of reduced household formation and lackluster construction activity.

Nonresidential construction spending is forecast to decline 2.1% in real terms in 2013. This market is hampered by all the political uncertainty that has led to a reduction in spending and risk taking by firms. This market will follow on the heels of the residential market, with growth coming in 2014.

We do not see credit easing significantly in the near term. If there can be a resolution to the federal fiscal situation, there may be some easing later in 2013. We do not expect this to play a role until 2014. A significant pickup in hiring, though, will increase the ranks of the employed who will be able to meet the tight borrowing restrictions.

AGC: Multi-family housing has been the brightest star in the construction firmament in recent months. Single-family construction has also risen sharply of late. For 2013, the rental market — overwhelmingly apartment construction — should continue to perform very well. But single-family construction could stall at a relatively low level.

Private nonresidential construction should do slightly better in 2013, led by power and energy projects, manufacturing construction, private colleges and universities and hotels. But the big retail and office markets will languish. Public construction is likely to drift slightly lower, just as it has in 2011 and 2012.

PCA: The housing market has been plagued by high inventories and low prices. Inventories, however, are coming down and prices are beginning to rise. Foreclosure activity has slowed somewhat, which has a positive impact on prices. Look for a 20% increase in residential construction, which also includes a brighter outlook for multi-family homes.