2017 is just around the corner and in preparation for that, we have developed a consensus growth forecast for the upcoming year. In this article, we'll examine the projected growth or decline by end-market segment, including residential, non-residential, and non-building construction, as well as the influencing factors.
Total construction in the United States will likely grow 7% in 2017. This growth is a bit higher than the expected growth for 2016. Let's take a look at the forecast for 2016 and 2017 by end-market.
2016 and 2017 Construction Forecast by End-Market Segment
In the residential segment, we will see a 10% increase in construction. This will be driven by a pick-up in single-family, which will have 9% growth this year and 12% in 2017. Multi-family’s growth has tapered off, growing in single-digits versus the double-digit growth it had experienced in previous years. It will still grow at 3% in 2017, but as we predicted the pendulum has started swinging towards single-family.
In terms of units, the average forecast is 1,290K residential units in 2017, 870K units for single-family and 418K for multi-family.
2016 and 2017 Average Housing Units (000s) Forecast
Growth in the residential markets is supported by several drivers, including:
- Population continues to grow overall
- Household formations are on the rise
- Unemployment rate is very low
- Income/wage growth is accelerating
- Mortgage rates remain at historic lows
- Growth in home values is expected to continue through 2017
- Rental vacancy rates are continuing to decline
Some factors that are hindering growth and might be risk factors for our residential forecast include:
- Rate of homeownership is declining, although this is positive for the multi-family/rental markets
- Lending standards remain high and credit availability is low
- Tightening in for-sale inventory, especially in entry level housing (below $200K)
- With valuations outpacing income growth, affordability is a growing concern
- Low land and improved lot availability
- Labor shortages
Among the non-residential segment, commercial is expected to grow 6% and institutional 7% in 2017. Commercial will be led by office and retail construction as a result of business confidence and employment improvements. Institutional will be led by education, which has been waiting to revamp given funding uncertainty in the past.
Non-building is forecasted to grow 2% in 2017, mainly due to growth in the transportation sector, which will experience a 3% growth. The passing of the transportation bill (FAST Act) in December 2015 is supporting this growth. On the other hand, after a big increase in 2015, infrastructure will slow down in 2016 and 2017, as a result of the lack of large projects that started in 2015.
Even with Trump winning the election and his emphasis on Infrastructure, the effect of his policies will only be seen in 2018 (check out my blog on the Trump Effect).
Overall the perspective for 2017 is of continued growth given the positive progress made in 2016. 2017 will most likely to be driven by single-family and education construction – two markets that directly reflect a stronger overall economy in the United States.
One area to watch is construction employment. Even though it is experiencing a very low unemployment rate, it has shown signs for concern. Namely, job openings are outpacing job additions, signaling firms are having a hard time finding qualified labor as I discussed in an earlier blog post. Labor shortages could curtail the pace of construction growth moving forward.
To see more details about the 2017 Forecast, download the full report below.