Reed Construction Data Forecasts Residential Construction Continues to Struggle

According to Bernard M. Markstein, chief economist for Reed Construction Data (RCD), Norcross, Ga., the residential construction market continues to struggle from the effects of:

• 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

The result has been housing starts, despite monthly variability, largely in a holding pattern. Although housing starts remain at very low levels — barely enough to replace the depreciation and loss (damage from fire, flood, earthquake, etc.) from the existing stock of houses, they are above the even lower levels from two years ago.

What little evidence of improvement in residential construction has come from multifamily projects. Declining vacancy rates have contributed to rising rents, which has bolstered the interest in investing in multifamily rental projects. Multifamily starts will continue to rise with employment gains, which will boost occupancy rates, allowing for rent increases. The Federal Reserve's Operation Twist, by lowering long-term rates, will increase the desirability of multifamily projects.

To view the full forecast, visit the RCD website.