As we are approaching the end of the year, it is good to look back on the year and plan for the year to come. On the macro level, we see that the US economy is slowly and finally stabilizing. It continues to have its share of fits and starts that are being reflected in the construction industry which is expected to grow to $9.4 trillion in 2015, according to Construction Perspectives and Oxford Economics, and total construction employment reaching up to 5.85 million. This constitutes a record since 2009 but we are still at 50% pre-bubble levels and might have to wait until 2017 to have fully recovered! So while things are headed in the right direction but we are far from out of the tunnel!
Here is the good news, with higher income and more jobs (3 million new jobs in 2014), demand for housing keeps increasing. It is estimated that there is 1 more million potential home buyers on the market today (younger buyers). Record low interest rates combined with lower down payments from Fanny and Freddie mortgages, lesser restrictions on credit conditions, a stronger job market means greater home buying power for Americans. As of Dec. 11 2014, an average 30-year, fixed-rate mortgage was 3.93 percent, down from 4.53 percent from January 2013! Stronger rental market has also boosted multifamily constructions to normal levels.
In 2015, new home sales are expected to increase 25 percent in the US, representing about 560,000 sales. This is still well below the 900,000 pre-bubble levels, but again, we are heading in the right direction. Housing starts should pick up 20% in 2015, for a total of 1.2 million, according to Kiplinger’s December economic outlook**
TOP HOUSING MARKETS FOR 2015
Here is Realtor.com top pick from their recently published 2015 Housing Forecast:
Dallas-Fort Worth-Arlington, Texas: ranked 1st in forecasted household growth over the next five years.
Houston-The Woodlands, Texas: ranked 3rd with 4% increase over the next five years.
Los Angeles-Long Beach, California: 4th place in potential household growth and a 4 percent increase over the next 5 years.
Washington, D.C.: ranks fifth. The sequester did deflate the housing market in 2013 and early 2014 but the situation is now corrected and a 10% increase in home sales is expected over the next 5 years.
Atlanta-Sandy Springs, Georgia: ranks seventh in forecasted household growth over the next five years with home sales are expected to rise by 11 percent.
Minneapolis-St.Paul-Bloomington, Minnesota is the second largest home-owning millenial households.
Denver-Aurora-Broomfield, Colorado is expected to see a 14% increase in home sales.
Des Moines-West Des Moines, Iowa
Phoenix-Mesa-Glendale, Arizona expects a 22 percent increase in new construction over the next 5 years.
San Jose-Sunnyvale-Santa Clara, California: Sustained employment and income growth makes this market outperform neighboring Bay area cities.
Top US states for Housing starts according to the National Association of Home Builders:
The South leads the pack with the following states:
Delaware, Maryland, District of Columbia, Virginia, West Virginia, North & South Carolina, Georgia, Florida, Kentucky.
Followed by West and the following states:
Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona, Utah, Nevada, Washington, Oregon, California, Alaska, & Hawaii.
4 NEW TRENDS IN CONSTRUCTION :
- Commercial lending on the increase:
Following the financial crisis in 2008, banks proceeded with a complete lending freeze in 2009. A slight improvement was noticed in 2013 and 2014, leading to a jump in commercial lending and a record in construction starts*. This trend should continue and even increase in 2015.
- Green from the get go
What used to be seen as an expensive “nice to have” features for high end construction is now being incorporated at the design level, as part of the blueprint that includes sustainable building materials, renewable energy, optimized energy performance and cradle to cradle components (LEED v4) for new construction projects. Demand for green renovations in existing buildings will also continue to grow.
- Mobile technology on the job
Design firms, building contractors, project managers are ditching paper for tablets, laptops and smart phones on the job site to better plan, manage projects and overall productivity.
- Demand for infrastructure repair
Previously, demand for construction was mainly driven by the private sector, but recently, with more natural disasters and extreme weather conditions in our future, rebuilding and fixing existing infrastructure is taking a more prominent place in the US and around the world.
8 FASTEST GROWING CITIES IN THE US
In addition to looking at housing starts, we also should take into consideration population growth provided by the U.S. Census Bureau population data (for July 1, 2012 through July 1, 2013) (measuring percentage population gain) and new construction for commercial and residential building. And the winners are:
Houston, TX (growing oil and gas industries) 2.6% gain
Austin, TX (fastest growing cities for the 4th year in a row) 2.5% gain
Phoenix, TX (construction industry jobs are up 5% year-over-year)
Raleigh, NC (Large tech companies, major universities, low unemployment rate) 2.2% gain.
Orlando, FL (booming tourism industry) 2% gain.
San Antonio, TX (oil industry) 1.9% gain.
Denver, CO (outdoor activities, growth in tourism, construction) 1.9% gain.
Nashville, TN (Music industry, healthcare companies, affordable cost of living) 1.8% gain.
Charlotte, NC (2nd largest banking center in the US after New York) 1.8% gain.
Oklahoma, OK (job growth in the oil industry) 1.7% gain.
Phoenix, AZ (growth in renewable energy, biomedical and aerospace) 1.6% gain.
Salt lake, UT (low 4% unemployment rate, growth in residential and commercial real estate, construction).
WHAT ABOUT EUROPE?
With its aging population and low birth rate (1%), weaker economies (Spain, Greece, Portugal etc.) Europe isn’t a great prospect for construction and new housing in the coming years. There is one exception: Istanbul, Turkey, the frontier between Europe and Asia, is showing signs of both and economic growth.
TOP 10 FASTEST GROWING CITIES IN THE WORLD (Next decade growth)
NOTE: The data below is based on population projections from the United Nations and immediate need for rapid housing construction and infrastructure development. They do not cover megacities that have known massive expansion in the past 20 years (like Mumbai, Mexico City, Dhaka, Bangladesh). As in all cases of explosive urban growth, the road is paved with many obstacles such as government instability, natural disasters, poverty level etc.
10. Chittagong, Bangladesh with projected 80% growth from 2006 to 2020 (second largest city and commercial capital of Bangladesh with a booming commercial real estate industry and construction)
9. Dar Es Salaam, Tanzania with 82% growth from 2006 to 2020 (is the third fastest growing city in Africa after Bamako and Lagos and ninth in the world). Had major construction boom in the past few years.
8. Faridabad, India with 83% growth (residential growth, end-user driven market)
7. Lagos, Nigeria with 84% growth (following a building collapse from 2000 to 2010, rebuilding infrastructure, improving safety)
6. Bamako, Mali with 84% growth (improve Mali’s urban infrastructure, drainage projects, flood protection)
5. Kabul, Afghanistan with 91% growth (military and political instability are major factors affecting the rebuilding of the country)
4. Surat, India with 98% growth (Gujarat’s second-largest city, eighth largest city and ninth largest metropolitan area of India, first smart IT city in India)
3. Sana’a, Yemen with 98% growth (largest city in Yemen, massive rural immigration is forcing investment in underdeveloped infrastructure and municipal services)
2. Ghaziabad, India with 103% growth (infrastructure development, residential market growth offers affordable housing and mid- segment)
1. Beihai, China with 309% growth (higher demand in biggest cities continues to climb while demand in smaller cities continues to fall).
In addition to the above, there a few emerging powerhouse cities that act as strategic platforms for China and India with the rest of the world that should be mentioned. They are:
Chongqing, China: This city serves as connector for top interior cities like Shanghai, Hong Kong, Shenzen and Guangzhou. It is in the process of building a large transportation infrastructure (new plane, roads, rail connections…)
In India, Bangalore, Ahmedabad (100.000 new jobs this year) and Chenmai (highest per capital income in India) are becoming world centers for auto manufacturing, software and entertainment. New housing construction is on the rise as a result of a fast growing middle class, investments from foreign companies, centers for higher education.
So whether in the US or abroad, the construction industry and new housing will continue to grow in the cities and regions mentioned above providing plenty of work and opportunities for this recovering industry.