When Will Lower Mortgage Rates Usher in the Construction Recovery?
- Ed Sullivan
- 1 day ago
- 9 min read
Breaking News: Market Update
The U.S. cement and concrete industries have experienced three consecutive years of decline and accounted for a 10 million metric ton decline in annual cement consumption from its cyclical peak of 2022. High inflation has robbed public spending programs of its potency. High interest rates have been a critical ingredient in the weakness in private sector construction. High mortgage rates are a key point of focus regarding the recent weakness in home building.
It is hard to visualize a recovery in the construction industry materializing without a significant reduction in interest rates, particularly conventional mortgage rates. New home affordability is so adverse that small improvements in interest rates, while helpful, will not lead to a significant recovery in homebuilding.
Based on demographics, we estimate an under build of three to four million homes has materialized during this cycle. Once mortgage rates drop low enough that significantly improves affordability, it will likely unleash a torrent of pent-up demand for single family, townhouses, and condominiums. We estimate the threshold mortgage rate that is needed to unleash this demand is 5.5%.
The recovery in construction activity will be ushered in by lower interest rates. The residential sector will lead this recovery. This article focuses on the outlook for mortgage rates and when the threshold rate might materialize. In essence, it addresses when the overall recovery in construction will begin.
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