The outlook for the U.S. building materials sector has been lowered due to a decreased demand in private construction. Moody's Investors Service downgraded its outlook from positive to stable following four years of strong growth.
"We expect lower organic operating income growth in the building materials sector over the next 18 months, as growth in private construction will moderate," said Griselda Bisono, assistant vice president –analyst, in a release.
Single- and multi-family housing will continue to grow in 2019; however, the growth will be at a much slower pace compared to previous years. Single-family starts will grow 3.2% next year, roughly two-thirds of what was seen from 2015–17. Multi-family starts will grow 2.4%. Nonresidential construction spending will grow 4%, which is nearly a percent slower than expected this year.
Meanwhile, homebuilder confidence sank in November, according to the NAHB/Wells Fargo Housing Market Index. The index dropped eight points to a reading of 60, the largest monthly setback since February 2014. Sales expectations over the next six months, buyer traffic and current sales each saw a decline as well. Buyer traffic dipped below 50, meaning builders are seeing poorer conditions. "While the overall index remains relatively strong at 60, there is little doubt that home buyers are pulling back from the market in a significant and sudden way," said a release from Wells Fargo Securities.
"While home price growth accommodated increasing construction costs during this period, rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall," noted NAHB Chief Economist Robert Dietz in a release.
-Michael Miller, managing editor