Raised interest rates may kill financially vulnerable construction projects

The Federal Reserve raised interest rates for the first time since 2023 on Sept. 16, potentially damaging the viability of construction projects on shoestring budgets. Construction Dive spoke with Michael Guckes, chief economist at ConstructConnect, a commercial construction data provider, who said the hike could stall or outright kill financially vulnerable projects.  

Construction Dive reports:

“If the change in rates severely impacts the project owner, this could result in an unexpected delay in contractor payments,” said Guckes. “In a worst-case scenario, higher rates could force the owner to put the project on hold, or even abandon it, which would leave the contractor saddled with immediate expenses and accounts receivable that are difficult to recoup from the owner.”

Construction Dive also interviewed Brian Strawberry, chief economist at FMI, a construction consulting firm. Strawberry told the publication that while raised interest rates would initially make floating-rate construction loans more expensive, it may be beneficial to construction companies down the line:

“A hike would immediately raise the cost of floating-rate construction loans, which is real money on projects carrying debt, but the bigger effect is likely lower long-term rates,” Strawberry told Construction Dive. “A hike that convinces markets the Fed is serious about inflation tends to pull the 10-year [Treasury] down, and that is where construction actually borrows.”