Construction Starts: Indications for 2019

A survey of various indicators – builder confidence, anticipate construction growth, the construction job market, home sales, and economic indicators – shows mixed but apparently favorable overall trends for our regional construction industry in 2019. In this article we compile recent reporting from five online sources to develop a an overview of what those in the construction industry can expect over the coming year.

NAHB: Builder Confidence Increased in January
A January report posted at Calculated Risk/ Finance & Economics (calculatedriskblog.com) indicated that The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 58 in January, up from 56 in December. Any number above 50 indicates that more builders view sales conditions as good. Buoyed by falling mortgage rates, builder confidence in the market for newly-built single-family homes rose two points to 58 in January on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Low unemployment, solid job growth, and favorable demographics should support housing demand in the coming months, according to the report.

Slower But Continued Construction Growth
According to a report posted last week in Construction Connect (constructconnect.com), construction spending nationally showed a 7th consecutive year of growth in 2018, a 5.4% increase from 2017. Construction spending is expected to grow in 2019, but at a smaller rate than the previous year. According to the report, ConstructConnect’s Fall 2018 U.S. Put-In-Place Construction Forecast put total construction spending increasing at just 4.2% to $1,368.7 billion in 2019. Total residential spending should reach 582.7 billion, a 3.5% growth over 2018. Total nonresidential construction is forecast to grow 4.8% to $786 billion in 2019, down slightly from the 5.0% growth in 2018. Architectural billings for nonresidential construction were positive all last year according to the American Institute of Architects. Billings are a strong indicator of future construction activity with construction spending following architecture billings by 9 to 12 months.

Construction Job Market Softening in 2019
According to a January report at ConstructionJobs (constructionjobs.com), for 2019 national construction growth are predicted to slow. While growth rates from 2012 to 2015 reached up to 14%, there was only a 3% increase in 2018 overall. Construction starts in 2019 are predicted to increase by less than 1%. Rising material costs and decreasing tax benefits to homeownership are among the reasons for their predicted deceleration of growth. While national housing starts will reportedly soften, market forecast predicts next year’s total construction put-in-place (the combination of residential plus non-residential construction) to increase 5.6% to $1.4 trillion, roughly the same as 2018’s escalation of 5.5% and calls for an increase of 6.2% in non-residential construction, up from last year’s 5.3% rise.

San Jose: Nation’s Hottest Housing Sales Again in 2019?
A report in December edition of the San Francisco Chronicle (www.sfchronicle.com) notes that South Bay housing sales, a strong indicator of construction sector strength, slowed at the end of last year due to both seasonality and buyers taking a wait-and-see attitude. The report indicated that San Jose has the lowest unemployment rate and the most jobs per person among the 50 largest U.S. metros, along with the highest home values and projected home-value appreciation. Specifically, home sales in Santa Clara, Alameda and Contra Costa counties were down 4% from the same time last year, apparently attributable to significantly increased for-sale inventory in San Jose in the fourth quarter. On the other hand, San Jose’s economy is deemed better poised than most to absorb this bump, with data showing the typical household income growing by 6.8 percent.

California Economy Will Continue to Grow, But Pace Will Slow in 2020
California’s economy will continue to grow but the pace is expected to ease per the slowing trend at the national level, according to a January article reported by the LA Business Journal (labusinessjournal.com). Economic growth at the state and national level are expected to weaken in 2020, but California ‘s growth is expected to continue to outpace the U.S. The report indicated that Californian’s real personal income growth is anticipated grow by 2.5 percent in 2018, 3.6 percent in 2019, and 2.9 percent in 2020. The forecast also anticipates acceleration in home building to about 140,000 units per year by the end of the 2020.

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