Page 8 - ProInstallerJuly-August 2022
P. 8

Market Study:

        State of U.S. Construction

        and Outlook 2022-2023

        By Daniel LoBue, Tego Systems Corp.

          t has been quite a turbulent six months since our last   Commercial Construction
          article in January/February 2022. Developments affecting   Commercial construction is continuing to trend down
       Icost and supply chains such as the Russian invasion of   compared to 2020-2021 (after adjusting for construction
        Ukraine, expanded inflation to its current 8.6%, the recent   inflation at 13%-plus over the last 18 months, the 3-5%
        60-day shutdown of Shanghai and rising interest rates   growth has remained negative). It has only grown by 3%
        require closer examination on how it is impacting the   from total construction spending of $488 billion in 2021 to
        housing market in the U.S. over the next 18-24 months.   $503 billion in 2022 (annualized as of April). Commercial
                                                            construction expenditures are still 7-10% below 2019
        Residential Housing Construction                    levels. With the economic outlook pointing to a possible
        Single-family housing completions ended at an annual rate   recession during 2022-2023, we expect that commercial
        of 1,242 units in 2021—a 4% increase compared to 2020.   construction activity will continue to moderately decline
        Total construction spending in residential housing has   as builders and investors will be more cautious and take a
        risen to $819 billion, an increase of 34%. We can clearly   wait and see approach.
        see construction inflation ran up 13.2% in 2021, as tracked
        by the Saint Louis Federal Reserve. Since the end of 2021          Construction Cost Inflation
        through the end of April 2022, total residential construction
        rose to $891 billion on an annualized basis, and factoring in   14.0%
        the rise to 8.6% inflation, things remained flat. Residential   12.0%
        building permits have started to cool off and have grown   10.0%
        only at 5% while housing completions have only increased   8.0%
        by 4%, indicating a slowdown is near. We will closely   6.0%
        monitor permits and completions going forward.        4.0%
        We continue to experience a severe shortage of housing     2018  2019  2020  2021  2022 Est  2023 Est  2024 Est
        due to the shortfall of construction since 2008. The
        entire growth of residential housing has come through
        multifamily construction, which grew to 592,000 units   Public Construction
        (annualized April 2022) up from a total of 437,000 units
        in 2020—an increase of 36% over the last 18 months.   Public construction (after adjusting for inflation) has
        Due to rising interest rates, high running inflation (both   started to decline even more rapidly, and it is yet to be
        construction and general) and persistent inventory   seen when the infrastructure bill which was passed last
        shortages which keep pushing prices up, some prospective   year will have a positive impact. It will eventually increase
        home buyers have been forced to rent instead of own.   substantially, adding $550 billion over the next 4-5 years.

                                                            Comparing the actual numbers one may come to an
                  Single-Family vs. Multi-Family Permits    overly pessimistic conclusion; however total construction
                                                            spending grew from $1.345 billion in 2019 to $1.745 billion
                                                            in April 2022. After factoring in inflation, expenditures have
                                                            grown substantially to where we are today compared to
                                                            a normal economic year in 2019. The baseline remains
         1200                                               very strong, as there is still a lot of pent-up demand from
         1000                                               the pandemic-induced slowdown and there are still many
          600                                               projects to complete in all three construction sectors.
          400                                                                                                  Charts By Daniel LoBue, Tego Systems Corp.
           0                                                Inflation, Geopolitical & Supply Chain Issues,
                 2020        2021       Apr-22              Recessionary Concerns
                                                            The Federal Reserve has acknowledged that the current
                         Multi-Family  Single-Family
                                                             high levels of inflation at 8.6% need to be reckoned with.
                                                            They will continue to raise interest rates until inflation
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