As the new year approaches, experts predict some market indicators to shift and some to remain the same in the construction industry. Overall construction spending is slated to increase in 2023 despite worries about a recession. The Archidiem team has considered market conditions as we develop solutions for pre-construction. Below are some factors and forecasts our team considered as we look forward to 2023.
2022 in Review
In 2022, the construction industry was heavily impacted by several market conditions, including labor, material shortages, interest rates, and inflation.
Currently, the construction industry is desperately seeking qualified, skilled craft professionals to build America. According to the ACG (Associated general contractors of America), “93% of firms reported that they have positions they are actively trying to fill, and of those, 91% are having great difficulty finding qualifying candidates to assume those roles.” Not only is staffing an issue, but the difficulty in obtaining the materials to complete projects is increasing costs and timelines. Materials were either unavailable due to labor shortages or significantly delayed due to logistical challenges.
Feds have continued to raise interest rates in an attempt to curb inflation. The target rate is projected to be 8% by the end of 2022. The federal reserve has stated that it will continue raising rates until inflation decreases. The concern is evidence of rate decreases do not become apparent until up to 18 months after the rate change. The rise in rates has negatively impacted entry-level buyers and increased the demand for rental and multi-family properties.
The average inflation rate is typically 3% or lower. However, in the last 12 months, inflation has risen to 8.5% and peaked at 9.06% in June. It is projected by Kiplinger that inflation will not decrease until the beginning of 2024 by 3%-4%. The increased cost of essentials has substantially impacted the cost of living without an increase in income for many consumers and businesses.
Despite the logistical and finance challenges faced by the industry, the housing market remains strong. Many statistics showing dramatic performance decreases are year-over-year comparisons that contrast numbers from an unsustainable booming market to a cooling but normal market. One key factor to consider moving forward is the remaining deficit of 3.8 million housing units throughout the United States, indicating the demand for housing is not going away any time soon.
2023 Residential Construction Industry Projections
What are experts saying about what to expect in 2023? Although the market will slow compared to the previous two years, shifts will help mitigate some of the challenges faced in 2022. As a result, there will be a return to pre-pandemic market growth, labor progress, and material availability.
The outlook for materials is optimistic heading into the new year due to solid gains in manufacturing and supply. Construction spending is projected to increase in volume versus margin. Lumber and plywood prices are expected to return to pre-pandemic levels by the end of 2023. Labor will remain a challenge; however, the industry will continue to leverage technology and manufacturing to compensate for the shortage.
As stated previously, rates will continue to rise until inflation subsides. Experts are anticipating a decrease in inflation during the second quarter of 2023. Due to the rise in inflation and interest rates, slower home price growth, a slowed rate of home price appreciation, and increased inventory are expected. To reiterate, it does not mean the economy is in recession but instead returning to normal. Markets to pay close attention to that will be more resilient to these shifts because of population growth include Florida, Texas, Utah, Idaho, North Dakota, Nevada, Colorado, Washington, Arizona, and South Carolina. Market segments in residential construction that will grow during this period of stabilization are townhomes, apartments, and other types of multi-family.
Archidiem is Here to Help
Recent reports show the challenges faced by the industry will start correcting themselves throughout 2023, except for labor shortages. The Archidiem team understands the level of expertise and efficiency needed during the pre-construction phase and provides solutions that evolve with the industry. In addition, Archidiem’s services help mitigate labor shortage issues and address material waste.
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