Bernard M. Markstein, RCD Chief Economist, has pinpointed key areas affecting the residential construction market, including:

• a sluggish economy, which is producing too few new jobs, adding to the unwillingness of households to undertake the major obligation of purchasing a home

• the negative effects of the overhang of the inventory of foreclosed homes and the resulting downward pressure on housing prices, adding to the inability/unwillingness of households to purchase a house

• difficulty in obtaining financing (a mortgage for a household, credit for home builders) despite historically low interest rates

Housing starts are staying at low, but stable, levels with slight improvement showing up in multifamily starts. Low vacancy rates push rent costs higher, leading to more multifamily rental investments.

Markstein expects “residential construction spending to fall 6.5% in 2011 and then rise 1.3% in 2012 and 7.2% in 2013.”

As for nonresidential building construction, spending has dropped 2.0% in July but was still at its second highest level since November 2010. Total for 2011, nonresidential spending is expected to fall 6.3%, but forecasts for 2012 and 2013 are positive with increases of 3.3% and 8.2% respectively.

RCD has reported “for lease” private projects rising again for the fifth consecutive month while spending for institutional projects fell. The bleak economic outlook is expected to put a damper on spending for nonresidential construction in the near future.

Source: Reed Construction Data