Construction, Home Remodeling
by Mike Dawson
to elevate interest rates, leading economists to predict a slight slowdown in construction in 2005. This could spell bad news for painting contractors.
But then again, so far so good. When reading about projected declines in construction, consider the context:
First, while the National Association of Home Builders and other major housing economists expect fewer houses and apartments to be built in 2005 than in 2004, the projected rate is still above 2003 and previous years.
Second, keep in mind that the same experts called for rising mortgage rates and falling construction spending for each of the last four years. The economy surprised them every time and construction continued to set records.
In fact, in early February of this year, home mortgage interest rates hit their lowest level in almost a year, despite the Fed raising interest rates for banks. In response to the dip in mortgage rates, another wave of homeowners refinanced their loans, which usually leads to more spending on home improvements.
“Interest rates on 30-year fixed-rate mortgages have not risen above 6 percent in at least six months,” says Frank Nothaft, Freddie Mac’s chief economist, “which has helped to keep the housing market bustling. As a matter of fact, we are forecasting that long-term mortgage rates will average only about 6 percent for the year.”
Of course, the early weeks on the calendar are not a guaranteed indication of the rest of the year, but so far the signs are more positive than negative. Still, rising interest rates are on the horizon. The Fed says it will continue elevating key rates to banks, which eventually should lead to higher interest on home mortgages, commercial construction loans, business lines of credit and even credit cards. As a result, money can get tighter for everyone.
But chances are your workload will not be any less than last year. Here are some other indications that rising rates may not slow the boom. The NAHB’s nationwide poll of builders shows that they expect the housing market to remain strong as the growing economy offsets rising mortgage interest rates. Apartment and condo builders are optimistic as well. They expect continued strength over the next six months, with even stronger demand for new condos.
Building permits for future groundbreaking, an indication that builders are confident they can sell new homes in 2005, fell just 0.3 percent to a 2.021 million unit pace in December. Analysts had expected a greater decrease of 2.1 percent. And builders apparently followed through on those permits in short order. Construction of new homes and apartments rose 4.7 percent in January to the highest level in more than 20 years — again, fueled by those lower mortgage interest rates.
The January increase once again took economists by surprise. They had foreseen a decline of about 4 percent, expecting bad weather on both coasts to slow progress. Instead builders broke ground on the largest number of new homes and apartments since February 1984, when construction starts hit an annual rate of 2.26 million units.