In today’s construction news, learn about the railroad connection to E. Pinhook, the Louisiana Department of Transportation and Development will be working to restore two stretches of US 90. Meanwhile, outlays on single-family housing developments in the United States climbed significantly in July due to the housing scarcity. Finally, builders are in fantastic shape thanks to the residential rebound and the trickle-down of federal assistance.
U.S. Highway 90 Gets Under Way for Construction
Original Source: Construction begins on U.S. Highway 90
The Louisiana Department of Transportation and Development is rebuilding two portions of U.S. Highway 90 from the railroad junction to E. Pinhook.
The $21.10 million project begins Tuesday, Sept. 5, and DOTD expects the first section to be completed by spring 2025. Concrete pavement patching, joint sealing, asphalt, slab jacking, and disability ramp improvements will be done.
Asher Lansiquot of Lit Smoke along the thruway believes construction could affect their business.
“Hopefully it won’t affect it too much because I mean this is like a major highway, so a lot of people still got to take this way,” said Lansiquot.
Businesses believe the construction is necessary but will impact traffic and their operations.
Because there are many little businesses here, Lansiquot said, “It will definitely be a change to businesses, small businesses.”
Jasmine Dean of New Ten chatted with Nasser Musa of Beauty and Beyond, another thruway business owner.
Of course it will impact business. What can you do? Musa hopes customers won’t drop depending on how long construction lasts.
Officials deem the U.S. Highway 90 project an infrastructure investment that will improve local access. Lansiquot believes construction must happen, but he hopes it succeeds.
Lansiquot stated, “I’m just hoping that everything still flows better and the actual outcome of is success because I’m not gonna lie the roads are a little traitorous every morning you travel.
DOTD said most construction will be done at night to minimize traffic disruption. Driving carefully and following work crew orders are also advised.
July US Single-family Housing Building Spending Climbs Significantly
Original Source: US construction spending rises strongly in July on single-family housing
July U.S. construction spending rose due to a scarcity of single-family homes.
The Commerce Department reported 0.7% construction spending growth on Friday. June construction spending was increased up to 0.6% from 0.5%. Reuters economists predicted 0.5% construction spending growth.
July construction spending rose 5.5% year-over-year. Private construction spending grew 1.0%, with residential construction spending rising 1.4% after rising 1.5% the month before. Private construction spending rose 0.6% in June.
Single-family housing spending rose 2.8% in July. A lack of homes for sale is boosting building, but increasing mortgage rates could slow it.
According to Freddie Mac, popular 30-year fixed mortgage rates are above 7.0%.
July construction investment on multifamily housing projects rose 0.2%. The record high supply of multifamily housing under construction limits further improvements.
July private non-residential spending on manufacturing rose 0.5%. Construction spending for manufacturing projects rose 1.1%. The Biden administration’s efforts to attract semiconductor production back to the US are driving facility construction.
Public construction spending dipped 0.4% after rising 0.6% in June. State and local government spending fell 0.1% while federal spending fell 3.6%.
The US Construction Business is Booming
Original Source: The US construction market is benefiting from a building boom
According to the Mortgage Bankers Association, the 30-year fixed mortgage rate hit 7.3% last week, its highest since December 2022, as the central bank raised interest rates. New mortgage applications fell to their lowest level since 1995.
However, the US’s largest listed housebuilders’ share prices indicate otherwise. DR Horton (US:DHI), the nation’s largest housebuilder, is up 30% this year. Competition Toll Brothers (US:TOL) and PulteGroup (US:PHM) have had share price improvements of over 50% and 70%, respectively. Since January, an S&P Global index of US housebuilders has risen 35%.
House improvements
The new house market has rebounded significantly. The standard US mortgage is not transferrable, so homeowners with 30-year fixed rates have been reluctant to relocate, resulting in an all-time low number of homes for sale in the second quarter, down 15% year over year, according to online property broker Redfin.
Home builders are the only way to buy a property. And there’s a significant population that wants to relocate out of cities to the suburbs and acquire a property,” said William Blair analyst Ryan Merkel.
Redfin reports that roughly a third of single-family homes for sale are new, up from 17% in the second quarter of 2019.
Given historically low housing construction since the 2008 financial crisis, supply was already constrained. A half-year presentation to investors by building products business CRH (CRH) claimed the US has a 5mn housing shortfall. Based on last year’s 1.38mn housing completions, that’s three to four years of supply. Our examination of CRH’s latest results.
Raymond James analyst Buck Horne upped earnings per share projections for several big housebuilders ahead of a strong second-quarter earnings period, but said he had been “flat-footed” by the sector’s success. “Numerous macro issues seemed poised to dramatically reset the housing market in 2023,” he said. However, job growth has accelerated, consumer balance sheets have held up, and home demand has stabilized. More crucially, the structural supply imbalance of single-family houses relative to demand has worsened.”
London-based hedge fund Argonaut Capital founder Barry Norris manages DR Horton and Lennar Corporation (US:LEN) investments.
Housing is still rate-sensitive, but “is clearly not as rate sensitive as it’s been in the past”, he said. He considers US housebuilder shares to have “interesting convexity” in risk/reward.
“If rates rise to 8%, will that really affect housebuilders’ share prices given they’re already at 7%? “If rates go back to 5%, you probably get a bigger boost,” Norris said.
Given the $1.2tn (£940bn) Infrastructure Investment and Jobs Act (IIJA), $369bn Inflation Reduction Act (IRA), and $280bn Chips and Science Act federal spending commitments, the sector’s medium-term prospects are good outside of housing.
Tunnel vision
According to the Dodge Momentum Index, non-building construction starts (roads, bridges, tunnels, and power plants) rose 21% in the year to July.
Stanley Elliott, an analyst at investment bank Stifel, said state transport department budgets for 2024 have climbed by 13%, following a 14% increase last year.
However, federal IIJA investments will make the most influence. $110bn has been allocated to rebuild roads and bridges and fund “major, transformational projects”. Public transport projects will receive about $90bn, power system upgrades will cost $65bn, and isolated communities will receive broadband connectivity.
The IIJA, authorized by Congress in 2021, has taken time to pay off.
KeyBanc Capital Markets analyst Sean Eastman said many engineering and construction consultancy groups doing early-stage design work are reporting “modest tailwinds”.
For instance, Aecom (US:ACM) CEO Troy Rudd cited his company’s lead design on the $1.6bn Brent Spence Bridge Corridor, which links Ohio and Kentucky, as “IIJA money coming into the marketplace”.
From next year, he anticipates IIJA, IRA, and other federal funds to increase, “peaking maybe in 2027 or 2028”.
Chief executive of Jacobs (US:J) Bob Pragada said IIJA-backed initiatives were in “the early phases of the early innings” and focused on transport.
“Some have speculated that between IIJA, Chips, the Inflation Reduction Act and reshoring activity, we could see $2tn of monies over a number of years – not five years, but not 20 years,” Elliott of Stifel said.
That doubles the US non-residential construction market of $1tn, he says.
KeyBanc’s Eastman said that the sector’s growth prognosis is strong due to spending on upgrading aging infrastructure, improving grid resilience to incorporate sustainability efforts, and reorienting global supply chains.
“I think all of those elements come together and produce a multitude of seemingly very durable construction capital investment themes,” he said. Aecom, Jacobs, and KBR (US:KBR) are among his companies that he believes are better investments than they have been.
“There has been a massive transformation,” he remarked. “Not only end markets and capital spending drivers, but also operationally”.
Their end markets have shifted away from oil and gas and commercial real estate, and their operational risk has been reduced by eliminating direct contracting businesses that take on lump-sum work in favor of “a pure-play professional services business model”.
Office politics
Commercial real estate is dead, especially in oversupplied office markets. JLL’s recent analysis of central business districts worldwide indicated that Asia Pacific office utilization is returning to pre-pandemic levels and Europe office use is 65–80%. In the US, core business districts are less than half full.
The US office market is oversupplied, with over 20% of space unlet. JLL reports that San Francisco vacancy rates tripled since the outbreak, hitting 28.3% in the second quarter.
S&P warns that a rebound in the office market “could take years” due to falling capital values and rising loan costs. Several office-focused Reits were degraded.
Thus, the market for new office development is stagnant, especially as funding, materials, and labor costs rise.
Elliott expects a “digestion period” for office and multifamily (apartment building) development, but notes that only 20% of the US non-residential construction market is commercial real estate and 10% is office.
Investors in the sector are most likely to buy into the main engineering groups, although there are others.
As noted in June, Caterpillar (US:CAT) has long been considered an economic bellwether, while equipment rental businesses like Ashtead (AHT) and United Rentals (US:URI) have reported strong top and bottom lines. Phil Oakley’s latest Ashtead analysis is here.
Elliott says they have benefited from a gradual change from contracting organizations owning equipment to hiring it.
Building merchants CRH and Ferguson (FERG) have solid records, while Builders FirstSource (US:BLDR) has excelled. The share price has more than doubled since January and fivefold since December 2019.
Two years ago, it merged with BMC for $3.7bn, creating the nation’s largest distributor during supply chain challenges and a housing boom.
Elliott said a wood price boom gave them sufficient flow to buy back 40% of its shares.
Given the skilled tradesman scarcity, it has invested in value-added services like timber frame kits for builders, which have been successful.
The Associated General Contractors of America has cautioned that the industry has hired 198,000 workers in the past year but is failing to replace retirees. Construction workers earned 18% more than other private sector production workers in July as average hourly wages rose 5.8% to $34.24. A market supposed to be dormant did well.
Summary of today’s construction news
In summary, the majority of the construction, according to DOTD, will take place at night to minimize disruptions to traffic. Drivers are also urged to exercise caution and obey posted signs and traffic control personnel.
Meanwhile, the report on building expenditures revealed a 0.2% increase in spending on multifamily housing projects in July. With a record number of apartment complexes currently in the planning stages, additional price appreciation is unlikely.
Finally, the Associated General Contractors of America has cautioned that the industry has hired 198,000 workers in the past year but is failing to replace retirees. Construction workers earned 18% more than other private sector production workers in July, as average hourly wages rose 5.8% to $34.24. A market that was supposed to be dormant did well.
