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2024 ion Season Begins with A Mixed Start

Michael Guckes
2024 ion Season Begins with A Mixed Start


Diverging market forces will require business leaders to navigate the construction industry carefully in the new year

It will be weeks and even months before fourth quarter data are published to reveal how the construction sector performed in the final months of 2023 and for the year. In the interim the use of high frequency indicators may serve as an early guide to the beginning trajectory of the 2024 construction season. Although what can be learned from such high frequencies series is often short-lived, data on US corporate yields and from Connect’s Project Stress Index can still provide some early useful insights for industry leaders.

Corporate borrowing costs through the final months of 2023 and first few days of 2024 have trended lower since reaching a more than decade high as recently as late-October. That latest corporate borrowing costs for BBB and CCC debt was cited by Bank of America at 5.43% and 13.33% respectively, down from 4Q2023 highs of 6.67% and 15.41%. These rate declines are copacetic with the Federal Reserves’ comments made during 4Q2023 in which it ultimately projected that it would make three, 25-basis point (0.25%) cuts during 2024. Falling financing costs coupled with generally flat to slightly declining construction material costs year-on-year should help kindle the appetites of owners and developers dependent on raising debt for future projects while also achieving their return on investment goals and avoiding unexpected cost surprises.

These recent developments in financial markets have also made their presence felt in the consumer housing market with the 30-year fixed mortgage rate in the opening days of 2024 hovering near 6.6% according to Freddie Mac. The 30-year rate has fallen sharply and steadily since setting a recent high of 7.8% in October 2023. This latest decline in mortgages rates will improve new home buying affordability as we kick off 2024. It may additionally support today’s still lofty new home prices which nationally have oscillated between $420,000 and $440,000 for most of the past year after falling from a previous high of nearly $500,000.

While current trends in financial markets may bolster industry growth in 2024, reverberations from 2023’s tumult could certainly dim some of the new year’s prospects. Among these Connect’s weekly Project Stress Index remains unusually elevated, indicating that an unusually high percentage of projects in their pre-construction phases continue to experience historically high levels of delayed bid dates, being put on hold, or being abandoned. During 4Q2023 the weekly recorded level of abandoned private sector projects was at times 40% to 55% above the same-week readings in each of the past three years. It may be of little surprise then that the first week of 2024 is presently on track to record the highest level of abandoned private sector project activity for any first week of a calendar year in the series’ history.

Although these are just two of the many metrics by which the industry can be measured and assessed, their seemingly opposing signals already suggest that 2024 will be a complex year for construction. Certain forces will push the industry ahead while others will hinder its growth potential. The nature of the industry —as it did last year— may once again favor those firms that are able to navigate towards

those sub-sectors with greater potential while avoiding those with the greatest risks. Knowing how to do this will come down to firms having a superior understanding of the construction market and knowing how to navigate your company towards finding the right work.


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