MHC predicts construction industry starts will rise 6 percent in 2013

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The construction industry next year will continue its slow climb out of a long and deep recession, but the recovery is unsteady and remains vulnerable to factors such as the cloudy federal fiscal picture, according to McGraw-Hill Construction’s 2013 Forecast, which was released at its annual Outlook conference in Washington, DC this week.

Total construction starts will rise 6% next year to $483.7 billion, as a continuing rebound in housing and private nonresidential building outweighs weakness in institutional building and public works markets, says the unit’s forecast. That gain would follow an estimated 5% increase for 2012, but it still would be well below 2007’s $641-billion and 2008’s $559-billion totals.

Robert Murray, MHC chief economist, says, “The pattern of construction starts seems to be in a balancing act, where gains for a few project types are offset by declines for other project types.”Murrayalso says, “The fiscal cliff poses a significant downside risk to the near-term prospects for the U.S.economy and the construction industry.”

For his forecast,Murrayassumes that federal policymakers will avoid a plunge over that fiscal cliff. He expects that Congress and the White House will reach an agreement in early 2013 to maintain some of the Bush-era tax cuts now slated to expire on Dec. 31 and also to soften the impact of spending cuts set to take effect Jan. 2 under the 2011 Budget Control Act.

Underpinning MHC’s 2013 forecast is the growing strength of the housing market, which finally turned the corner in 2012 after years of depressed activity.

Single-family housing is expected to increase 24% in 2013 to $153.1 billion, following this year’s 27% gain, according to the forecast. “The positives for single-family housing have become more numerous with the pace of foreclosures easing, home prices stabilizing and mortgage rates at record lows,” says Murray.

In addition, multifamily housing starts are expected to climb 16% next year, to $40.3 billion,Murray also predicts. Commercial building will rise 12% in 2013, building on the 5% gain estimated for 2012, according to the MHC forecast. Within that sector, warehouse and hotel construction is expected to benefit from lower vacancy rates and retail building will get a lift from the upturn in housing and also feature more upgrades to existing space, Murray says.

The manufacturing building market is expected to rebound in 2013 from this year’s disappointing 31% drop, posting an 8% increase that would generate $12.8 billion in new starts.

The institutional building market should level off following double-digit declines in 2011 and in 2012, according to MHC. That will leave the public building market with $86.6 billion in new starts in 2013, about equal to this year’s estimated mark.

For educational facilities, K-12 construction will slip further while college construction stabilizes. The health-care facilities sector is expected to show a modest rebound after this year’s downturn.

Public works construction is forecasted to dip another 1% in 2013, the fourth consecutive annual decline, the MHC report says. However, the recently signed two-year federal transportation measure, the Moving Ahead for Progress in the 21st Century Act, should help to limit the impact of spending cuts to highway and bridge construction, Murray adds.

After three strong years, the boom in electric utilities isn’t expected to continue in 2013, with new construction starts forecasted to fall 31%, to $35 billion. The full report is available at McGraw-Hill Research and Analytics.

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