Lower interest rates to benefit construction (USA)

Ed Sullivan, the chief economist and senior vice president of market intelligence for the Portland Cement Association (PCA), representing the USA's cement manufacturers, says the Federal Reserve's recent move to lower interest rates, coupled with an ease in inflation, signals a signicant retreat by the end of next year. This should all benefit construction activity. At PCA's annual fall meeting last week (Aurora, Colorado), Sullivan shared the industry's 2025 economic forecast with cement company leaders. The highlighted points included:

• It will take time for the impact of the Federal policy pivot to materialise in the economy and construction sector. In the short term, consturction activity will remain burdened by high interest rates. As more rate cuts transpire, construction loan rates are expected to decline, giving new life to the market. This will be seen from mid-2025 onwards.

• Mortgage interest rates are expected to decline to 5.5 per cent by mid-2025 and to 5.0 per cent by 2025 end. This is likely to see a more favourable home affordability and a surge in consumer demand. 

• Lower rates will also bring an increase in the supply of existing homes on the market. This is expexted to more than offset the increase in demand, leading to a reduction in new and existing house prices.

• Nonresidential consturction is not expected to see a recovery until 2026 because it will take time to improve occupancy rates and a higher net operating income, arriving as the economy gains momentum next year.

• Public construction activity is expected to benefit from increased spending associated with the Bipartisan Infrastructure Law.