Construction: Residential Begins to Stabilize; Commercial to Falter

No recession is ever good for the construction industry, but this one has been particularly tough because it was accompanied by a lending crisis—owners and developers have been unable to get financing for projects, said Burleigh Morton, senior director, Research & Analytics, McGraw Hill Construction.

Even though federal funds were pumped into the situation, “they did little to thaw the credit freeze,” he pointed out. However, like other market outlook speakers, he said the worst of the nation’s economic situation is now behind us, and he predicted the Gross Domestic Product will begin to see positive percentages by late 2009/early 2010.

In the residential sector, home sales stabilized during the first quarter, brought in line by declining prices and foreclosures, he said. Overall, housing starts have fallen about 71% from their peak, which was in 2005. But the excess supply is beginning to decline, he said. For the year, residential will have about a 32% decline, he said.

Nonresidential construction, however, will begin to feel the pain of the credit crunch acutely this year, showing the first decline—a drop of about 39%. And the market will not see much improvement for the next year or so. The only sectors of non-residential construction that will see growth this year are public buildings and transportation helped along by stimulus funds, Morton said.

In the manufacturing sector, Morton said that while starts rose double digits over the past four years, much of that growth came in fuel production, a situation that has changed dramatically. Industrial starts will have fallen to $15 billion by the end of this year, a drop of 48% from 2008 figures of about $29 billion, he said.

FORECAST: Starts for both residential/commercial will decline 21% for 2009 to 438 billion. Gains will be experienced in 2010, but the nation won’t get back up to pre-recession levels until 2011.