Construction industry outlook
OUTLOOK | April 20, 2023
Authored by RSM US LLP
Interest rates pose challenges for builders, but opportunities are on the horizon
Residential construction sees a favorable long-term outlook despite ongoing challenges affecting the housing market.
After a drastic shift in the second half of 2022, the housing market started with a strong foothold in 2023 once builder sentiment rose following reports of an early spring selling season and stronger-than-expected sales.
The outsize impact of interest rates
Last year, mortgage rates climbed much more rapidly than expected, reaching nearly 7.5% in September after starting the year below 3.5%. The rapid rise in mortgage rates led to a substantial slowdown in demand, as potential homebuyers could no longer afford monthly mortgage payments.
This increase caused many to rethink their buying decisions and created housing affordability issues across the United States.
Affordability remains a top concern for the housing market as monthly mortgage payments (assuming a 20% down payment) are up 38% from a year ago for a median-priced new home and 40% for a median-priced existing home. Despite these increases, pent-up demand, the use of builder incentives and some easing in mortgage rates have brought some consumers back to the market.
Still recovering from global financial crisis, construction faces ongoing setbacks
The construction industry continues to be hampered by limited availability of skilled labor.
The Great Recession was a once-in-a-generation event that resulted from the global financial crisis of 2007-09, set off by the U.S. housing market crash that sent the construction industry into a downward spiral. It was not apparent then that these events would continue to define the next two business cycles and make a lasting impact on future generations.
Residential and nonresidential construction was slow to rebound coming out of the recession. Developers, homebuilders and construction companies approached each deal with a heightened degree of caution intended to shore up macro-level support.
While added caution helped to mitigate risk, it also led to a dearth of new housing, with annual starts and completions sustained at a rate of 1.5 million units. The result was low housing inventory and a decline in rental vacancy rates leading up to the COVID-19 pandemic.
This article was written by Nick Grandy, Crystal Sunbury and originally appeared on Apr 20, 2023.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
BST & Co. is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how BST & Co. can assist you, please call (518) 459-6700.