CMD: Construction starts to grow 8.4% in 2016

Dive Brief:

Construction information provider CMD Group’s fourth-quarter forecast report predicted construction starts will grow by 8.4% in 2016, driven by a strong residential sector — due to rising household incomes — and a growing nonresidential sector due to more business investment.
CMD predicted overall growth in 2015 will reach 6.8% by the end of the year, slightly lower than the company's third-quarter prediction of 7.1%.
The firm also noted that during the last quarter, strong civil engineering activity offset weaker, but still healthy, residential and nonresidential segments, with total construction starts somewhat lower than expectations.

Dive Insight:

CMD also expects a slowdown in the civil engineering segment in 2016, but, according to the report, the uncertainty resulting from lack of a long-term federal highway bill plays a big part in that prediction. In recent days, Congress has expressed the possibility of sending a highway bill to President Obama in within a few weeks, but CMD has not revised its estimates in the event of the bill’s enactment.

The rise in 2016 wages, which CMD predicts will help residential growth — when combined with low mortgage rates and slowing house price inflation — will also result in higher rates of homeownership. That means more renters would be able to take advantage of the cost savings of mortgages over rising rents.

"A good gain in U.S. construction starts in 2015 will accelerate in 2016 and 2017, before settling down in 2018," said CMD chief economist Alex Carrick. "Some moderation in engineering strength, which has been a mainstay of site work lately, will be compensated by a pick-up in nonresidential building activity. In residential, pent-up demand for new housing continues to accumulate and will soon need addressing."

Other key forecasts from CMD’s report are:

Residential starts will grow by 15.3% in 2016 with another double-digit rise expected in 2017.
Homeowners forced into rental properties during the recession, combined with a millennial preference for urban living, has increased demand for multifamily units. This trend could reverse in coming years, however, given higher incomes and an easing of credit requirements.
In nonresidential, office construction has declined in recent years, but stronger investment, rising employment and fewer vacancies should drive growth in the sector into 2017.
Hotel occupancy rates are close to 20-year highs, so additional hotel construction is likely, and the Affordable Care Act, as well as an aging population, will continue to push hospital construction growth.