End Markets | 3 MINUTE READ

Construction to Grow in 2018, 2019

The good news for all those in attendance at NPE2018—processors and suppliers alike—is that all signs point to continued growth in housing in 2018. Read on to find out what Perc Pineda, PhD, chief economist for Plastics Industry Association, has to say about how home ownership affects the plastics industry. 
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The building and construction market is considered by many as the bellwether for the economy as a whole, and certainly for plastics. There are direct correlations between building and construction and plastics—the material is omnipresent in house wrap, siding, window profiles, pipe, appliances, fencing, landscaping film, and more. What’s more, when people invest in a new one or remodel an existing one, it suggests an underlying confidence in their own future and often results in an uptick in increased purchases of electronics and other consumer products, all of which heavily rely on plastics for form and functionality.

The good news for all those in attendance at NPE2018—processors and suppliers alike—is that all signs point to continued growth in housing in 2018. This according to Michael Guckes, chief economist for Cincinnati-based Gardner Intelligence, a division of Gardner Business Media, publishers of eight business-to-business magazines, among them NPE2018 exhibitors Plastics Technology, MoldMaking Technology and Additive Manufacturing.

“At nine-years’ old, the current economic expansion in America has lasted longer than most other economic expansions and probably longer than most economists have expected, Guckes says. “For many business leaders, knowing that the economy is due to for a pull-back may be reason to hedge against expanding business and taking on new risks. In some end-markets this may be prudent, but of all markets, data from the housing market indicates that there is very little chance of a slowdown even in the event of a short-lived recession,” he adds.

U.S. demographic and housing data through January 2018 reveals the building and construction industry has “solid gains” for seven straight years, states Guckes. He adds, “The fundamentals supporting this growth give Gardner Intelligence confidence that this market remains substantially underserved. So even in the event of an economic slow-down at some point in the next few years, odds are that the housing market will be a source of strength, rather than a weakness for the economy.”

Added Perc Pineda, PhD, chief economist for Plastics Industry Association (PLASTICS): “The homeownership rate is still below previous highs, signaling ample room for growth. As such, the plastics industry is expected to remain stable in business activity as the housing market continues to recover. While monthly volatility and regional variations in new and existing home sales will continue, on aggregate the underlying trend in housing demand is positive. Total home sales this year and the next are projected to increase 2.5% and 2.6%, respectively. Housing starts or new residential construction projects started, which is an indicator of demand for plastics in home construction is projected to increase in the 7% to 8.5% this year.”

Between the great recession and 2016, demographic data indicated a decline in homeownership rates among those between the ages of 25 and 39, Guckes notes. At the same time, the number of households created in this same age range has increased every year since mid-2010 and is now 20% higher than at the peak of the 2007 housing boom. Guckes explains, “This combination of lower ownership rates and high household formation has created a foundation for additional housing that will be especially sharp in-light of rising wages and low unemployment which may move more family into the category of homeowner.”

Housing starts have progressively improved every year since 2009; however, even the latest annualized housing construction rate at 900,000 homes is more than 20% below the average home starts rate between 1985 and 2001 of greater than 1.1 million homes. “Low housing start levels in recent years also come at a time when housing affordability is better now than at any time prior to 2008,” Guckes says. “Housing affordability, which hit a multi-decade high in 2012, has fallen since, yet is still significantly better than at any time between 1985 and 2007. Looking forward, should the Federal Reserve raise interest rates, as is expected to happen several times in 2018, this will increase mortgage rates, increasing the cost of homeownership, hurting the housing affordability index.

Bottom line, according to Guckes, “Despite the increased chances of a slowing economy at some point in the future, strong demographic trends and good home affordability will produce substantial tail-winds in the housing markets. Suppliers and processors fabricators looking to diversity and grow should keep watch for opportunities for their companies to grow in this market.”

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