2023 New Construction Forecast
This year began with a booming economy, but lingering effects of the Covid-19 Pandemic, fiscal policy, supply constraints, and skyrocketing inflation have slowed construction to a halt. With 2022 coming to a close, builders, developers, investors, and financial institutions are gearing up for a difficult 2023.
According to the Dodge Forecast, 2023 is expected to bring fewer new construction projects than 2022, including residential and commercial construction. In 2023, the dollar value of new construction projects is predicted to decrease by 3% without factoring in inflation.
The Dodge Construction Network is one of many warnings of a weak 2023. The National Association of Home Builders (NAHB) just announced that the Housing Market Index (HMI) had reached its lowest level since August 2012. According to Robert Dietz, the NAHB's chief economist, this (2023) will be the first year since 2011 that there has been a decline for single-family starts.
How to Prepare:
While some economists may have missed the upcoming recession, most builders and developers did not. They have been gearing up for a recession by tightening their books and being more selective with prospective projects. Here are three things you can do to set yourself up for success even during a recession:
- Prioritize the best projects, or find ways to improve your projects. With a pre-sold project, you can save a lot of money on construction loan interest rates. You don't want to do all the prep work for a project only to have your go-to lender turn you down. Be more selective about which projects you choose to take on.
- Shop around for the right lender. With banks tightening their lending practices and interest rates skyrocketing, there has never been a better time to look for a new lender. If your regular lender turns down your project, don't give up. Many companies, like CoFi, are aggressively searching for responsible builders and projects to fund. These companies are getting creative with their lending, introducing step-pricing that starts you off with a low rate on your construction loan, then progressively increases as you draw more.
- Avoid high-risk projects. No lender wants to fund a risky project with uncertainty in the market. Higher interest rates reduce the end buyer's ability to buy and could leave you stuck with your project. Are you confident in your ability to execute and offload your project if the circumstances drastically change?
- Reduce costs on your projects. Affordability is one of the top reasons buyers are pulling back. Are there ways you can cut prices while maintaining profit margins? Now is the time to renegotiate pricing with your subs and suppliers. Look at ways to add value or change finishes on your projects.
The Bright Side
Is there a bright side to our current housing situation? Possibly. There is a large quantity of money on the sidelines right now that could come pouring back into the market. The United States has a tremendous amount of pent-up demand for housing. At some point, the economy will come roaring back, and the need for construction will be greater than ever. Staying in the game with safe projects now and planning for future projects is vital.
Companies like CoFi invest thousands of man-hours and millions of dollars into helping builders survive these critical conditions. Look for upcoming posts for tips, tools, and resources from CoFi that will help your company get your projects funded.