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With interest rates remaining “higher for longer,” charged to slow the economy for a soft landing, 2023 has very much been a year of stabilization for the construction industry. Global supply chain issues have calmed below pre-COVID levels, with electrical gear being an exception, and construction costs have largely remained stable, albeit at a higher level. Labor shortage in our industry is a contributing factor we continue to be mindful of as it remains an underlying influence on construction cost levels. According to the Federal Reserve Bank of Richmond, in our home state of North Carolina, labor demand still outweighs positions being filled, leading to increased labor rate projections for 2024.
While much of the talk has been focused on interest rates and construction costs for new projects, there is another growing concern to understand. According to Mortgage Banker’s Association, there are $350+ billion of mortgages secured by Multifamily assets maturing over the next 2-3 years, with most of these loans having floating rates. As a result, forthcoming loan defaults could lead to a short-term focus for investors buying and repositioning these distressed assets, as opposed to pushing ground-up development in the current environment.
At the preconstruction level, we have continued to see an improvement throughout 2023 in subcontractor coverage on Concorde's invitations to bid. This trend should continue into 2024 as active backlog works off and new starts have waned. Collectively, this should increase competition and be an influence on pricing over the next several months.
As our industry continues to face challenges, the Southeast still maintains the strongest backlog in the US. According to Emerging Trends in Real Estate®, Charlotte and Raleigh-Durham remain as top 15 overall real estate markets in the US for 2024. And specifically for homebuilding, these same markets are in the top 10. Much of this sentiment is fueled by the “in-migration” we continue to see with residents leaving major MSAs in other states for smaller to mid-sized MSAs here in the Carolinas. This ongoing population and job growth in the Carolinas should position our market above others for the coming years.
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