Report Shows Construction Industry Rebound But Not Without Headwinds

According to a new U.S. Construction Industry Outlook released by Euler Hermes, a leading global provider of trade credit insurance, the U.S. construction industry is expected to maintain its rebound as the nation’s economy improves, but not without facing headwinds.

“Thus far, the recovery has been biased toward existing home sales,” said Kim Fleischer, construction sector analyst at Euler Hermes. “We hypothesize that rising rates pulled forward hesitant buyers who were waiting for a bottoming of rates, while simultaneously discouraging buyers from entering contracts on new homes.”

In addition, commercial construction, which has experienced 8.5% annual declines over the past five years, is expected to rebound over the next five years.

Key points outlined in the report include:

  • The residential housing market has begun to show a sustained improvement as a result of lower inventory, rising prices, attractive financing to qualified buyers, as well as an improvement in the general economy.
  • Commercial construction has also begun to rebound, but not as quickly as the residential sector due to the large number of vacancies and longer lead-times required to complete new projects.
  • Concerns about the Fed "taper" have recently caused a run-up in mortgage rates from 3.47% in January to 4.41% as of August. Higher rates have led to a slowdown in refinancing activity, but the full impact on the nascent housing recovery is indeterminate.

The full report can be accessed at www.eulerhermes.us.

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