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2013 construction starts on pace for 6 percent gain

New construction starts are forecast to reach $506 billion, according to the Midyear Update to the 2013 Construction Outlook from McGraw Hill Construction, New York.

The 6 percent rate of increase for total construction starts, year-over-year, was predicted last October, and follows the 8 percent gain industry economists observed in 2012.

“The recovery for construction continues to unfold in a selective manner, proceeding against the backdrop of the sluggish U.S. economy,” said McGraw Hill Construction Vice President of Economic Affairs Robert Murray. “While the degree of uncertainty affecting the economy seems to have eased a bit from last year, tight government financing continues to exert a dampening effect on both the economy and the construction industry. On the positive side for construction, the demand for housing remains strong, market fundamentals for commercial building are strengthening, and lending standards for commercial real estate loans continue to ease gradually. On balance, the recovery for construction is making progress, but at a single-digit pace given the mix of pluses and minuses by major sector.”

The Midyear Update to the 2013 Construction Outlook includes these key market sector projections:

Single family housing will advance 28 percent in dollars, corresponding to a 24 percent increase in the number of dwelling units to 640,000 (McGraw Hill Construction Dodge basis). The inventory of new homes for sale is currently very low, which should spur more construction, and home prices are heading upward. The recent increase in mortgage rates has raised concern, but rates remain near historic lows and have not significantly affected affordability for most potential homebuyers.

Multifamily housing will climb 23 percent in dollars and 20 percent in units, helped by the gains reported for occupancies and rents over the past year. Major metropolitan areas such as New York continue to see groundbreaking for large apartment projects, along with the reemergence of large condominium projects.

Commercial building will grow 15 percent, after the 11 percent increase reported for 2012, although this year’s level of activity in dollar terms will still be 39 percent below what was reported during the 2007 peak year. The pace of store construction is picking up, joining earlier gains registered by warehouses and hotels. The increase for office construction will remain relatively subdued in 2013, as more privately financed office projects are countered by fewer government office buildings.

The institutional building market will slide an additional 5 percent, after falling 10 percent in 2012. While state fiscal health has shown some improvement, state and local budgets remain tight, further dampening school construction. Uncertainty related to hospital mergers and the Affordable Care Act is restraining construction of healthcare facilities.

The manufacturing building category will drop 8 percent, as firms hold back on plant investment given the sluggish U.S. economy and slow export markets.

Public works construction will rise 3 percent, helped by growth for highways and bridges.

The transportation sector was largely exempt from the federal spending cutbacks under the sequester, and the current year is seeing a number of large bridge projects reach the construction start stage.

Electric utilities will see a 40 percent plunge in the value of new construction starts, following the record high that was achieved in 2012 which included the start of two large nuclear facilities. With new generating facilities coming online and capacity utilization rates dropping, the near term is seeing downward pressure on new power plant construction.

In addition to the Midyear Update, Murray is the author of the annual Dodge Construction Outlook, providing a look at the year ahead, which is released each October at McGraw Hill Construction’s Outlook Conference in Washington, D.C. Additional information on the event can be obtained at

Builder confidence in the market for newly built, single-family homes rose three points to 59 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for August, marking a fourth consecutive monthly gain and bringing the index to its highest level in nearly eight years. 

“Builders are seeing more motivated buyers walk through their doors than they have in quite some time,” says NAHB Chairman Rick Judson, a Charlotte, N.C., home builder. “What’s more, firming home prices and thinning inventories are contributing to an increased sense of urgency among those in the market.”

“Builder confidence continues to strengthen along with rising demand for a limited supply of new and existing homes in local markets,” adds NAHB Chief Economist David Crowe. “However, this positive momentum is being slowed by the ongoing headwinds of tight credit and low supplies of finished lots and labor.”

Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

Two of the HMI’s three components posted gains in August. The component gauging current sales conditions rose three points to 62, while the component gauging sales expectations in the next six months gained a single point to 68 and the component gauging traffic of prospective buyers held unchanged at 45. All but one region saw a gain in its three-month moving average HMI score in August. The Midwest and West each posted six-point increases, to 60 and 57, respectively, while the South posted a four-point gain to 54 and the Northeast held unchanged at 39.