In December of 2023, the Federal Reserve indicated that three rate cuts, each of 0.25%, are likely in 2024. As a result, home mortgage rates have already begun to decrease. Commercial lending rates should decline in the following months. These possible rate cuts could have significant benefits to the construction industry.

1. Renewed availability of bank financing. Commercial building starts have been slow due to higher interest rates. Projects planned for three years ago and expected to start this past year lack funding due to higher rates. A downward change in rates should free up bank financing on market-rate housing and commercial building projects.
2. More predictable construction costs. Lower interest rates are a sign that the Fed believes inflation is under control. This is good news for the construction industry, which has had significant increases in wage and material costs over the last 2.5 years. With inflation easing, costs on projects may become more predictable.
3. Increased number of borrowers. Mortgage interest rate hikes over the last two years have significantly slowed the sales of new and existing homes. As rates stabilize, more borrowers will enter the market for two reasons.  First because of pent-up demand, and second because rates in the 5 or 6% range are close to the 30-year average. Homebuyers may find a new normal at higher rates and may not see sub- 4% again.

4. Slower industry recovery—except for entry-level housing. Construction activity ups and downs tend to be 12-18 months behind changes in the overall economy. It takes a long time to go from planning and design, through permitting to bidding, financing, and starting a project, so changes in rates in the short term are not expected. The exception to this rule is entry-level housing. A reduction in mortgage rates can lead to housing starts on a faster timeline.

After a season of slowing, the construction industry may see business improve, thanks to potential rate cuts. Planning now can help you take advantage of these possible rate cuts in 2024. If you’re ready to plan your business’s strategy for the likely rate drops, let’s talk.