The demand environment for building products and materials companies will be weaker next year, driven by a soft residential remodeling sector and low housing starts, according to Fitch Ratings’ North American Building Products and Materials Outlook 2024.
“Fitch expects a weaker, but fairly stable, operating environment for North American building products and materials companies in 2024 as private construction markets are projected to underperform public markets,” Ryan O’Loughlin, director in Fitch Ratings’ U.S. Corporates group, said.
Fitch forecasts median building products sector organic revenue to be flat in 2024 after a marginal decline of 0.3% in 2023. The forecast anticipates companies with greater exposure and volume from public construction will outperform companies primarily serving the private market.
Repair and remodeling expenditure is projected to fall 4% to 5% in 2024, following a projected decline of 3% in 2023. Professional projects likely will remain skewed toward modest, nondiscretionary jobs over larger, discretionary projects.
Housing starts are projected to fall 4.1% in 2024 as housing affordability and “a weak economic backdrop” will likely keep housing demand constrained, according to Fitch Ratings. While multifamily construction is expected to contract significantly in 2024, Fitch Ratings projects single-family starts will improve 3.4% next year.
In addition to lower volume in the private sector, Fitch Ratings projects higher M&A activity in 2024 due to “narrowing bid-ask spreads,” normalized channel inventories, and the return of seasonal working capital flows.
“Fitch expects acquisitions to skew toward small and midsized companies. However, transformative acquisitions are possible despite higher capital costs and subsequently higher hurdle rates given the strong balance sheets and liquidity positions of investment-grade issuers, which refrained from sizable acquisitions in recent years,” Fitch Ratings wrote in its 2024 outlook.
