Lower Interest Rates, Easing Inflation Will Boost Construction Activity in 2025-26, PCA’s Ed Sullivan Says
The Federal Reserve’s recent move to lower interest rates coupled with easing inflation signals a significant retreat in interest rate levels by the end of next year, Ed Sullivan, chief economist and senior vice president of market intelligence for the Portland Cement Association said at the PCA’s annual meeting. The lowering of interest rates will benefit construction activity, Sullivan noted at the Aurora, Colo., meeting.
Sullivan shared the industry’s economic forecast for 2025 in his talk to cement company leaders. Sullivan said it will take time for the impact of the Fed’s policy pivot to materialize in the economy and construction. Near term, construction activity is expected to be burdened by oppressively high interest rates. As more rates cuts occur, construction loan rates are expected to decline, bringing positive development to the construction market. This is expected to begin by mid-2025.
Mortgage interest rates are expected to decline to 5.5 percent by mid-2025 and to 5 percent by the end of 2025, Sullivan said. The rate cuts will usher in favorable home affordability and a surge in consumer demand.
Lower rates will also usher in a significant increase in the supply of existing homes on the market. This is expected to more than offset the increase in demand and lead to a reduction in new and existing home prices, further enhancing affordability.
Nonresidential construction will also benefit from lower interest rates, Sullivan added. However, it will take time to improve occupancy rates and a higher Net Operating Income. These will come as the economy gains momentum next year. Given this, nonresidential is not expected to see recovery until 2026.
Also, public construction activity is expected to benefit from increased spending associated with the Bipartisan Infrastructure Law.
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About the Author
Michael Roth
Editor
Michael Roth has covered the equipment rental industry full time for RER since 1989 and has served as the magazine’s editor in chief since 1994. He has nearly 30 years experience as a professional journalist. Roth has visited hundreds of rental centers and industry manufacturers, written hundreds of feature stories for RER and thousands of news stories for the magazine and its electronic newsletter RER Reports. Roth has interviewed leading executives for most of the industry’s largest rental companies and manufacturers as well as hundreds of smaller independent companies. He has visited with and reported on rental companies and manufacturers in Europe, Central America and Asia as well as Mexico, Canada and the United States. Roth was co-founder of RER Reports, the industry’s first weekly newsletter, which began as a fax newsletter in 1996, and later became an online newsletter. Roth has spoken at conventions sponsored by the American Rental Association, Associated Equipment Distributors, California Rental Association and other industry events and has spoken before industry groups in several countries. He lives and works in Los Angeles when he’s not traveling to cover industry events.