Sources: Portland Cement Association, Washington, D.C.; CP staff
PCA Chief Economist and Senior Vice President of Market Intelligence Ed Sullivan told member producers during their fall meeting that 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—all to the benefit of residential and nonresidential building markets. Among key takeaways of his 2025 forecast:
• Interim market weakness. 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 rate cuts transpire, construction loan rates are expected to decline, spurring new life into the market as soon as mid-year.
• Mortgage rate inflection point. Mortgage interest rates are expected to decline to 5.5 percent by July and 5.0 percent by year-end. That likely sets the stage for favorable home affordability and consumer demand surge. Lower rates will also usher in a significant increase in the supply of existing homes, likely offsetting the impact of higher demand and leading to a reduction in new and existing home prices.
• Nonresidential market on deck. Nonresidential construction will also benefit from lower interest rates, albeit on a slower timetable than home building. Occupancy rate improvements and higher net operating income from commercial properties will surface as the economy gains momentum next year, leading to nonresidential construction recovery in 2026.
• Infrastructure Investment and Jobs Act tailwinds. Public construction stakeholders are poised to benefit from increased spending associated with the IIJA, now in its fourth year of funding transportation and other public works.