Construction Outlook is Positive for 2015

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A good trend for Plumbing contractors in 2015

An expected increase in residential and commercial construction in 2015 will be good news for plumbing, heating and HVAC contractors throughout the country. Other positive signals as the New Year gets underway include continuing demand for remodeling projects and technology upgrades, such as energy-efficient HVAC and water-conserving plumbing systems

“Single-family builders are feeling good,” said David Crowe, chief economist, National Association of Home Builders (NAHB) at a recent Construction Forecast Webinar. “This is mostly due to significant pent-up demand and steady job and economic growth that will allow trade-up buyers who have delayed home purchases due to job insecurity to enter the marketplace.” Overall, the NAHB is forecasting single-family home production to rise 2.5 percent in 2014 to 637,000 units, increase an additional 26 percent to 802,000 in 2015, and reach 1.1 million units in 2016.

Meanwhile, a growth in rental demand from young Millennials who can’t yet afford to purchase homes will keep the multifamily market moving along. Multifamily starts were projected to increase 15 percent in 2014 to 356,000 units and hold steady in 2014. “Low housing inventory and the sizeable demand for rentals will continue to spur multifamily construction as well as keep rents rising above inflation through next year,” said Lawrence Yun, chief economist, National Association of Realtors® (NAR) in a recent forecast.

Digging into the national numbers, Robert Denk, NAHB’s assistant vice president for forecasting and analysis, noted the housing recovery in 2015 will vary by state and region. “We are getting back to the point where economic conditions are dictating the strength of local housing markets,” said Denk. “It is very clear that those states with higher levels of payroll employment or labor market recovery are associated with healthier housing markets.”

Energy-producing states such as North Dakota, Texas, Louisiana, Montana and Wyoming are at the forefront of the housing recovery while Iowa and other farm belt states supported by agricultural commodities are also running above the nationwide average. However, states such as Nevada, Arizona, New Mexico, Alabama, Rhode Island and New Jersey that are coping with weak labor markets are struggling to get their housing activity back on track.

Housing nationwide bottomed out at an average of 27 percent of normal production in early 2009 and the gradual recovery now underway across the country will bring single-family housing starts to 68 percent of normal by the fourth quarter of 2015 and 90 percent of normal by the end of 2016, Denk added.


Commercial projects

The commercial real estate sector is also poised for broad-based growth in 2015, according to projections from consulting firm Deloitte. Improving property performance, a strengthening economy, easy financing, and increased domestic and international investment activity are all positive signals for the contracting trades. “What’s really going to be a driver in 2015 will be the strengthening real estate fundamentals,” said Bob O’Brien, U.S. real estate services leader at Deloitte.

Continued economic momentum in the U.S. should keep commercial real estate activity on firmer footing in the coming year, according to Yun. “Job growth is the catalyst to improved demand for commercial real estate leasing and new construction projects,” he said.

However, Yun added that the global economy is softening, which could impact U.S. markets in the next year. “Although GDP will likely climb to near 3 percent in 2015, the current pace of job growth could slow and ultimately impact commercial real estate activity if sluggishness in the global economy persists,” Yun said.

Turning to the major commercial sectors, Yun made the following projections:

  • Office vacancy rates are forecast to decrease 0.5 percent over the coming year due to job growth exceeding inventory coming onto the market.
  • Improved manufacturing activity should lead to a declining vacancy rate for industrial space (0.4 percent),
  • Retail space is forecast to decline 0.2 percent behind a boost in consumer spending from personal income gains and lower gas prices.
  • “Low housing inventory and the sizeable demand for rentals will continue to spur multifamily construction as well as keep rents rising above inflation through next year,” says Yun.


Remodeling sector

Plumbing, heating and HVAC contractors will also find new business opportunities in the remodeling sector in 2015. The NAHB Remodeling Market Index (RMI) matched its all-time high of 57 in the third quarter of 2014. An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower.

Overall, residential remodeling activity is expected to rise 2.7 percent in 2015 and an additional 1.3 percent in 2016. “Most remodelers remain confident that the market is improving as home owners undertake renovations, large and small,” said NAHB Remodelers Chair Paul Sullivan. “The consistency and longevity of positive RMI readings are in line with the gradual recovery of the housing industry.”

The RMI’s future market conditions index rose to 58 from 56 in the previous quarter. All four of its subcomponents—calls for bids, amount of work committed for the next three months, backlog of jobs and appointments for proposals—increased or remained level with the previous quarter’s reading.

“The major headwind to a stronger recovery is a shortage of qualified labor and subcontractors in some parts of the county, making if difficult for remodelers to employ carpenters and finish projects as quickly and economically as many of their customers expect, added Crowe.


An upbeat forecast

Across the nation, contractors will continue to meet the residential and commercial customers’ demands energy-efficient HVAC systems. In many cases, the costs of purchasing a new system can be partially offset by local or state incentives, while lower operating costs translate into ongoing monthly savings for the owner or tenant.

In states and regions where water supplies are limited – including much of the West and Southwest – plumbing contractors may be able to install new fixtures and systems in homes and commercial properties, especially if the owner is planning an addition or remodeling project.

Summing up the outlook for 2015, NAHB Chairman Kevin Kelly, said, “The markets are recovering at a slow, gradual pace. Continued job creation, economic growth and increasing consumer confidence should help spur pent-up demand for housing.”

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