During the Portland Cement Association’s Fall Meeting, the association’s chief economist and senior vice president of market intelligence shared the industry’s economic forecast for 2025.
Ed Sullivan said the Federal Reserve’s recent move to lower interest rates coupled with easing inflation signals a significant retreat in interest rate levels by the end of next year … all to the benefit of construction activity.
However, he noted that it will take time for the impact of the Fed’s policy pivot to materialize in the economy and construction. Near term, construction activity is expected to be burdened by oppressively high interest rates. As more rate cuts transpire, construction loan rates are expected to decline – spurring new life into the construction market. This is expected to begin by mid-2025.
Mortgage interest rates are expected to decline to 5.5% by mid-2025 and to 5.0% by year-end 2025. This is likely to usher in favorable home affordability and a surge in consumer demand. Lower rates will also drive a significant increase in the supply of existing homes on the market. This is expected to more than offset the increase in demand and lead to a reduction in new and existing home prices, further enhancing affordability.
Nonresidential construction will also benefit from lower interest rates. Unfortunately, Sullivan said it will take time to improve occupancy rates and a higher Net Operating Income. These will come as the economy gains momentum next year. Given this, nonresidential is not expected to see recovery until 2026.
Lastly, public construction activity is expected to benefit from increased spending associated with the Bipartisan Infrastructure Law.
