After five years of frenetic growth that has confounded forecasters at times, it appears that the residential construction markets are poised to level off, according to construction industry management consultants FMI, of Raleigh, N.C. in its "2000-2001 U.S. Markets Construction Overview." Total housing starts for 1999 were 1.66 million units, gaining 2.9% over 1998. This level represents a gain of 22.8% since 1995. For the year 2000, however, FMI estimates that starts will drop to 1.57 million units and then to 1.47 million in 2001.
"The single-family housing market hit yet another record in 1999 with put-in-place construction totaling $212.7 billion. This marked the fourth consecutive year of substantial gains¿ FMI predicts that this growth will flatten out at a high level through 2000 and 2001. Accordingly, forecasts indicate that single family construction will reach $222.0 billion in 2000 and $224.0 billion in 2001, gains of 4% and 1%, respectively."
Office construction grew 14% in 1999 to $34.3 billion. According to FMI, "Although it's hard to make a 14%, $4.2 billion increase look bad, 1999 posted the poorest showing of the past three years. After seven consecutive years of growth, this star performer may be fading a bit. Yet although the pace may relax, all signs point to several more years of solid growth."
On the other hand, the construction of new industrial buildings decreased 17%, to $9.9 billion, in 1999. Capacity actually increased during this time, due to new machinery, equipment and technology without the benefit of added brick-and-mortar. However, slow growth is expected nonetheless, as "future years will see an increasing amount of construction per percent of capacity as the surge of technological investments inevitably subsides."
On contracting in general, FMI had this to say: "Heavy contractors have been slower than other industry firms to truly automate the job site. However, as advantages are recognized, this automation likely will occur in the near-term. There are significant profit improvement opportunities available in the project planning and management areas through increased automation, particularly at the job site, and tomorrow's most-profitable contractors will be those that leverage resources in this area."
Highlights of FMI's fourth quarter 2000 Construction Outlook include:
An expectation that the Fed will find it prudent to raise interest rates yet another time or two in the next two or three quarters.
The economy will continue to drift downward and will execute a soft landing about midyear in 2001, at which time it will begin a rather energetic rebound.
Single-family housing construction will experience modest growth over the next two years. Single family housing starts will decline from 1999 levels by 2% in 2000 and another 4% in 2001.