Equipment lenders, dealers and manufacturers are poised to benefit from increased homebuilding and infrastructure projects next year, although construction loan delinquencies remain high.
Construction spending is projected to increase 3.8% in 2025 to more than $2.1 trillion, according to a Dec. 12 report by the Equipment Leasing and Finance Foundation (ELFF), citing the Associated Builders and Contractors. The report aggregates data from multiple sources to provide an outlook on the construction industry.
The expected jump in construction activity was partly attributed to the $1.2 trillion federal infrastructure bill, signed in 2021. As of November, roughly $568 billion of the infrastructure plan had been committed to more than 66,000 projects across the country, according to the White House.
With increased infrastructure spending, some manufacturers have experienced a surge in demand from construction equipment dealers in fast-growing metropolitan areas, including Austin, Texas; Nashville, Tenn; and Dallas, Charles Baldwin, a national sales representative at Elizabethtown, Ky.-based manufacturer Kato Compact Excavator Sales, told Equipment Finance News. Additional infrastructure projects in the coming years will also create opportunities for smaller dealers, he said.
“There’s a lot more business to be had in those areas of growth. There is a lot more opportunity for the small mom-and-pops, the independent people, to come in and actually make a very good living.”
— Charles Baldwin, Kato Compact Excavator Sales
Kato has been working with its lending partner, Oakmont Capital, to subsidize interest rates for new equipment, Baldwin said.
While cash and tax incentives from legislation such as the CHIPS Act have supported construction projects, “complexities and bureaucratic processes” have stalled the rollout of federal money, according to the ELFF report.
Residential construction bounces back
New residential construction spending declined in 2023 and is expected to dip slightly in 2024, hovering above $800 billion, according to ELFF, citing research firm Statista. However, residential construction spending is expected to steadily rise over the next three years to nearly $1 trillion.
More contractors are visiting dealer lots as they prepare for residential projects, Lori Bunger, vice president of sales and used equipment at San Antonio-based Holt Cat, told EFN.
“There’s a need for more homes and more roads and more infrastructure … so our customers are paying attention to those jobs and bidding for those jobs,” she said. “All those residential properties need a mix of equipment.”
While federal interest rates have started to drop recently, high labor and material costs continue to challenge construction companies, the report states. Steel mill product prices, for instance, rose 77% from February 2020 to February 2024, and ready-mix concrete jumped 33% over that stretch, according to the National Association of Home Builders.
Delinquencies spike
Delinquent construction loans at U.S. banks topped $4.8 billion in the first quarter, the highest level in three years, up from nearly $4.3 billion at the end of 2023, according to S&P Global. Thirty-plus-days delinquencies in the equipment finance industry have been hovering above 2% for much of 2024, according to the Equipment Leasing and Finance Association.
Subdued homebuilding has contributed to high construction equipment loan delinquencies this year, Matt Manero, president of Carrollton, Texas-based Commercial Fleet Financing, told EFN.
“Construction delinquency is up, but that goes along with reduced home building and the slow deployment of the infrastructure bill,” he said.
Increased homebuilding and infrastructure projects next year, coupled with anticipated lower interest rates, are expected to reduce delinquent construction loans, Manero said.
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