Construction Industry Outlook 2022
What to expect in 2022
It is no exaggeration to say that the past two years in the construction industry have been a wild ride. The pandemic caused unexpected shutdowns that stalled the nation in 2020, and we continue to feel the repercussions of that in 2022. Fortunately, the construction industry rebounded in 2021 and experienced better-than-expected growth. Although that growth is projected to slow as we move farther into 2022, market forecasts for the construction industry remain solid.
While the outlook for the year is positive, the residential and commercial construction industry will continue to face significant challenges that include high material costs, supply chain disruptions and labor shortages.
Rising home values and remote work transform the housing market
The housing market exploded in 2021 and is expected to remain strong through 2022. As home values continue to appreciate, homeowners are more willing to invest in professional remodeling projects. This is good news for those in the residential construction industry. It is also a change from previous years which trended toward smaller, do-it-yourself remodeling projects. According to Remodeling, this shift toward professional projects should boost homeowner remodeling expenditures to $370 billion by early next year. Overall, solid remodeling gains are predicted through 2022.
New homes continue to be in demand as individuals who were once committed to living in the city are now exploring life in the suburbs and more rural communities. This is largely the result of jobs transitioning from on-site to virtual. Employees now have the option to live anywhere they want.
Skyrocketing home prices are not only impacting residential construction forecasts. They are also helping to strengthen the outlook for commercial construction. As local governments use property tax to drive much of their revenue, home reassessments will result in more tax base for many communities. This, in combination with Infrastructure Investment and Jobs Act, will help to fund more commercial construction projects in the coming year.
Material costs are expected to remain high
Surprisingly, high material costs have not slowed the demand for new homes and remodeling projects. Consumers understand that prices are expected to continue to rise and are motivated to invest now before inflation sends costs even higher.
According to Engineering News-Record, “the annual inflation rate in the U.S. reached a three-decade high of 6.2% in October.” This increase has had a direct impact on construction materials, which the Bureau of Labor Statistics estimates has risen an estimated 20%. As you can see from this chart, published by the Bureau of Labor Statistics, U.S. Department of Labor, The Economist Daily, producer prices for lumber was up 89.7% for the year ended April 2021. “The largest 12-month advance since the data were first collected in 1927.”
It is projected that inflation will likely remain high throughout 2022, although there is hope that the Federal Reserve may help limit the inflation rate to 3-4%. This, and the recovery of the manufacturing industry could strengthen the supply chain and help lower the price of some materials.
Supply chain improves, but still causing headaches in 2022
Although data from the American Supply Association shows improvement in supply chain flows, there is still a tremendous backlog to work through. In other words, supply chain shortages are expected to continue to plague the construction industry throughout 2022.
The Wall Street Journal, citing a May 2021 survey by the National Association of Home Builders, reported that “more than 90% of builders reported shortages of appliances, framing lumber and a type of engineered wood known as orientated strand board. […] Another 90% said they faced shortages of plywood, and 87% cited shortages of windows and doors.”
Although value engineering can typically help contractors find a similar, more affordable option, widespread shortages have forced consumers to consider higher-priced options. To help combat this, experts are advising contractors and subcontractors to partner with larger suppliers who have better access to in-demand construction materials.
Labor shortages make meeting demand a struggle
In December, CNN Business reported that there were 3.6 million more Americans who left the workforce permanently compared to the same timeframe in 2020. Of that group, 90% were over the age of 55. This statistic supports the belief that labor shortages in all industries are largely the result of retiring Baby Boomers.
The construction industry is no stranger to the challenge of labor shortages, but recruiting younger talent is not getting any easier. According to Engineering News-Record, it is becoming difficult to convince young people that construction offers a good future. The article goes on to say that job growth has slowed because many people are looking for jobs that allow them to do remote work. “They want to wake up when they wake up,” making it challenging for employers to recruit for jobs that require workers to be on-site at specific times.
L.E. Smith, your partner in residential and commercial construction
When you choose L.E. Smith for your countertop and surface needs, you partner with a company that is committed to helping you become more profitable and successful. We strategically select in-demand products and colors to carry in stock to ensure that we have the materials you need when you need them. Our team of experienced professionals can also help you meet demand during peak seasons, ensuring labor shortages do not hinder the growth of your business.
L.E. Smith is proud to be certified as a Women’s Business Enterprise (WBE) through the Women’s Business Enterprise National Council. We recognize the commitment to supplier diversity that is embraced by corporations and government agencies today and are pleased to contribute to adding diversity to your supply chain.
Visit us online at www.lesmith.com or call 419-636-4555 to learn more about how we can help your business in 2022 and beyond.