The Housing Market & Other Factors Impact Cement Demand

Posted on June 22, 2023

What are the prospects for global cement demand in the near term? Following a post-Covid surge, emerging trends conspire to reduce cement demand.

Limited residential real estate sales and construction is a key. In 2021, four-fifths of the increase in U.S. cement demand came from the residential side. View the most recent PCA forecast here.

Key Factors Impacting Demand

The housing market is in the throes of a perfect storm of higher mortgage rates and low inventory. Homeowners with sub-4% mortgages have little desire to sell, only to turn around and tackle rates in the 7-8% range. Higher rates also threaten to upend the commercial real estate (CRE) market.

Higher mortgage rates

When the average 30-year mortgage hit 7% in November 2022, it was the highest in 20 years. Reductions in the Federal Funds Rate will have to wait until late 2023, if then. Inflation persists despite repeated rate hikes. Extra savings accumulated during the pandemic are one cause. Multiple Economic Impact Payments were one cause.

Downturn in new home construction

In 2023, new home construction is enduring a double-digit decrease. Home builder confidence has declined for 11 months straight. Ironically, lumber prices are no longer an obstacle for wood-frame builders. Prices generally remain below $500/MBF. However, inflation and mortgage rates conspire to disqualify many prospective buyers.

The dichotomy between single family and multifamily housing is stark. Analysts see a big drop in single family housing starts in 2023, followed by stabilization in 2024. At the same time, more multifamily units under construction than since 1974.

Those with low-interest mortgages staying put

According to Redfin, 32% of homeowners either have no mortgage or a sub-4% rate. Many of these well-positioned homeowners secured low-interest mortgages on rapidly appreciating assets. Even if they must move for work, they are increasingly likely to keep these properties and rent them out. In a downturn, they will sustain paper losses only.

The National Association of Homebuilders (NAHB) estimates that 18 million U.S. households have been priced out of the market. In 2022, the median price for a new single-family home was $450,000. At that level, the difference between a 3% and a 7% mortgage is $1,000 per month.

In the current housing market, some who must move will choose to rent, rather than to sell their homes. Many current homeowners are staying put with their 3-4% mortgages. Either interest rates must fall back to sub-5 levels, or we have to build our way out of the problem.

Commercial real estate challenges

Edward Sullivan is Chief Economist and Senior VP of Market Intelligence at the Portland Cement Association (PCA). He says, “In the context of net operating conditions expected for 2023, nonresidential construction will likely add to the declines originating from the residential sector.”

Deloitte interviewed 450 CFOs of CRE investor and developer firms. Forty percent expected increasing revenues, 12% see no change, and 48% foresee lower revenues. Compare this to 2022 when 80% expected increased revenues.

There are numerous factors in play here. Developers are reluctant to advance projects until it’s clearer how permanent the work-from-home movement will be. Workers resist calls to return to the office. At many companies, the hybrid workweek may be here to stay, softening demand for office space in the process.

Office vacancies are far higher than in the retail and industrial sectors. According to analysis from Cushman & Wakefield, nationwide office vacancies are at 18.6%. Compare this to a retail vacancy rate of 5.6% and an industrial vacancy rate of 3.6%.

In residential real estate, 30-year fixed rate mortgages are the norm. However, as one lending site notes, “the rates for commercial mortgages and CRE loans often fluctuate.” When the Fed raises the benchmark federal funds rate, CRE quickly feels the effects. On May 3, 2023, the rate hit a 16-year high.

Investors and developers who financed purchases during an era of exceedingly low rates now face jarring increases in debt service costs. Some projects deemed viable when rates were low are anything but as rates soar.


The post-Covid economy has been beset by inflation. In fact, rates hit a 40-year high in June 2022. Fuel prices have increased, especially diesel. Supply chain issues remain, due in part to pandemic disruptions and Russia’s invasion of Ukraine.

Outlook into 2024

The AIA/Deltek Architecture Billings Index predicts nonresidential construction spending 9-12 months into the future. An ABI greater than 50 reflects a net increase in billings. In late 2022, the ABI dropped down into the 40s.

Easing interest rates

Housing is one of the most interest-rate-sensitive sectors of the American economy. Morningstar projects a “year-end 2023 federal-funds rate of 4.75%, falling to about 2.00% by the end of 2024.” Morningstar also projects that “the Fed will overshoot its goal with inflation averaging 1.9% over 2023-27.” The investment research firm sees a 30-40% chance of a short-lived recession, should one occur.

Impact of Infrastructure Investment and Jobs Act (IIJA)

Things look better for late 2023 into 2024 when the impact of the infrastructure bill H.R. 3684 is more keenly felt. The 1,039-page bill was signed into law on November 15, 2021.

The IIJA provides funding for many projects benefiting the concrete industry. These include:

  • Roads, bridges, and major projects

  • Passenger and freight rail

  • Ports and waterways

  • Airports

In the next five years, the American Subcontractors Association estimates a $550 billion expenditure Ken Simonson is the chief economist at the Associated General Contractors of America (AGCA). He says, “I expect a big pickup in 2023 in infrastructure investment as money from the IIJA starts to be awarded and contractors get to work on those projects.”

Overall, the Portland Cement Association (PCA) sees a modest recovery in 2024. Still, there is much to overcome. Some material prices have increased by double-digit percentages. IIJA funds will flow in 2024, but construction labor shortages may intensify in response.

About PACA

The Pennsylvania Aggregate and Concrete Association (PACA) follows innovations in the concrete industry. Should you have questions about your upcoming project, please contact our team.

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