The weak economy and tight credit conditions, coupled with severe job losses and the resulting decline in state government revenues, will translate into significant weakness for the construction industry through 2010, leading the Portland Cement Association (PCA) to again adjust its cement consumption forecast.
The latest PCA forecast of cement, concrete, and construction predicts a 12.8 percent decline in cement consumption in 2008, followed by 11.9 percent and 2.1 percent declines in 2009 and 2010, respectively.
The PCA report cites the continued drop in residential starts and the erosion of the strong fundamentals supporting nonresidential construction as major factors leading to reduced cement consumption. The weak economy also has affected the public construction sector.
“Several economic factors are negatively influencing the construction industry,” Edward Sullivan, PCA chief economist said. “High energy prices, the sub-prime crisis, the melt-down of our financial markets, inflation, job losses and tight lending standards are combining to create weak economic conditions and the emergence of huge state deficits. Public construction accounts for nearly half of all the total cement consumption in the U.S., and states in poor fiscal condition will need to cut back on this spending.”
PCA expects cement consumption in residential to decline 31.7 percent in 2008 and 16.9 percent in 2009, but a rebound of the market in the second half of 2010 will lead to a 12.1 percent increase in consumption in that year. Consumption in the nonresidential sector is expected to decline 22.2 percent in 2009 and the public sector will see 6.6 percent declines in 2009 and 2010.
“The nonresidential construction market typically takes 18 months from the onset of better economic conditions to rebound,” Sullivan said. “With weak consumer spending, this sector will be especially hit hard in retail construction.”
PCA predicts a recovery to begin in 2011 with a 10.3 percent increase compared to 2010 consumption and a return to near-record consumption levels by 2013.
Thursday, November 20, 2008
Wednesday, November 19, 2008
Construction Input Prices Fall in October
Summary
Construction input prices fell 2.8 percent in October – the largest one-month decrease since July 1986 – according to the November 18 producer price index (PPI) report by the U.S. Labor Department. Despite the dramatic decline, construction input prices remain 10 percent higher than October of last year (see graph below).
Construction input prices fell 2.8 percent in October – the largest one-month decrease since July 1986 – according to the November 18 producer price index (PPI) report by the U.S. Labor Department. Despite the dramatic decline, construction input prices remain 10 percent higher than October of last year (see graph below).
Prices for fabricated structural metal products dropped by 0.6 percent in October, but are still 15.1 percent higher than one year ago. Plumbing fixtures and fittings prices dropped slightly in October by 0.1 percent, however they are up a relatively modest 4.1 percent from October 2007. Nonferrous wire and cable prices dropped 7.7 percent – the largest monthly decline since 1949. The decrease brings the year-over-year change down 5.4 percent from October 2007. Prices for fabricated ferrous wire products increased 2 percent in October following a slight decrease in price the month prior. Still, prices are up an astonishing 30.55 percent from a year ago. Softwood lumber prices decreased 7.4 percent from September, the largest monthly decrease since November 2004, and are now down 8.8 percent from last October. In contrast, asphalt felts and coatings prices continue to increase, rising 5.7 percent from last month and up 60.2 percent from a year ago.
Crude energy prices dropped significantly, down 24.9 percent in October, with crude petroleum down 26 percent and natural gas down 29.1 percent. Gasoline prices dropped 24.9 percent on a monthly basis. Finished energy good prices fell 12.8 percent from the previous month. Overall, prices for finished goods decreased 2.8 percent, making it the third consecutive monthly decrease.
What This Means
"Even as the broader economy continues to deteriorate, and is increasingly frustrating development and construction efforts, the seeds of the next recovery are being sown," said Associated Builders and Contractors' (ABC) Chief Economist Anirban Basu. "With construction materials prices generally in retreat, developers will find it easier to make their pro formas work. However, in the near term, this may make little difference to contractors and others in the construction supply chain since the credit crunch continues with little sign of abatement," said Basu.
"Even though certain materials costs are declining, developers are finding that the revenue stream for new construction, such as new tenants, is weak," added Basu. "Therefore, revenue projections related to prospective development remain muted.
"One of the big winners in declining materials prices is the federal government," said Basu. "The next stimulus package will likely possess a significant infrastructure component, and with lower materials prices, the federal government will be able to purchase more infrastructure per dollar. This would appear to be an advantageous moment for the nation to begin to build its 21st century infrastructure, since such investment would address both short- and long-term economic considerations."
"Even as the broader economy continues to deteriorate, and is increasingly frustrating development and construction efforts, the seeds of the next recovery are being sown," said Associated Builders and Contractors' (ABC) Chief Economist Anirban Basu. "With construction materials prices generally in retreat, developers will find it easier to make their pro formas work. However, in the near term, this may make little difference to contractors and others in the construction supply chain since the credit crunch continues with little sign of abatement," said Basu.
"Even though certain materials costs are declining, developers are finding that the revenue stream for new construction, such as new tenants, is weak," added Basu. "Therefore, revenue projections related to prospective development remain muted.
"One of the big winners in declining materials prices is the federal government," said Basu. "The next stimulus package will likely possess a significant infrastructure component, and with lower materials prices, the federal government will be able to purchase more infrastructure per dollar. This would appear to be an advantageous moment for the nation to begin to build its 21st century infrastructure, since such investment would address both short- and long-term economic considerations."
Producer Price Index, Inputs to Construction Industries, Oct. 2006 through Oct. 2008
For more information, contact Gerry Fritz, fritz@abc.org
HOUSING AFFORDABILITY NATIONWIDE RISES TO HIGHEST LEVEL IN FOUR YEARS
With home prices decreasing and interest rates holding at historically low levels, the number of potential home buyers nationwide who can afford to buy new and existing homes has reached the highest level in more than four years, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released today.
According to the third-quarter HOI readings, 56.1 percent of all new and existing homes that were sold were affordable to families earning the national median income of $61,500, far more than the 40.4 percent of families who could afford homes at the peak of the housing boom.
"If there is a silver lining to this crisis, it would be that some housing markets have become more affordable with a larger inventory to choose from," said NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, W.Va. "But this is undeniably a crisis and Congress needs to act on housing stimulus to get the market moving again."
The two most affordable major housing markets in the country during the third quarter of the year were Indianapolis, Ind., and Youngstown, Ohio, according to the HOI. In both Indianapolis and Youngstown, 91.0 percent of homes sold in the third quarter were affordable to families earning the areas' median household incomes of $65,100 and $52,000, respectively.
Also near the top of the list for affordable major metropolitan areas were Grand Rapids-Wyoming, Mich.; Warren-Troy-Farmington Hills, Mich.; and Detroit-Livonia-Dearborn, Mich., in that order.
One smaller metro market (fewer than 500,000 people) outranked all others in terms of housing affordability during the third quarter of 2008 -- Springfield, Ohio, where 92.9 percent of all homes sold in the period were affordable to families earning that area's median household income of $54,500.
New York-White Plains-Wayne, N.Y.-N.J., was the nation's least affordable major housing market for the second consecutive quarter. In the New York market, 10.6 percent of the new and existing homes sold during the third quarter were affordable to those earning the area's median family income of $63,000.
Other major metro areas at the bottom of the housing affordability chart included San Francisco-San Mateo-Redwood City, Calif.; Nassau-Suffolk, N.Y.; Los Angeles-Long Beach-Glendale, Calif.; and Miami-Miami Beach- Kendall, Fla., in that order.
Among smaller metro areas, the other markets at the bottom of the affordability chart were San Luis Obispo-Paso Robles, Calif.; Santa Cruz-Watsonville, Calif.; Napa, Calif.; and Bend, Ore., respectively.
Please visit www.nahb.org/hoi for tables, historic data and details.
According to the third-quarter HOI readings, 56.1 percent of all new and existing homes that were sold were affordable to families earning the national median income of $61,500, far more than the 40.4 percent of families who could afford homes at the peak of the housing boom.
"If there is a silver lining to this crisis, it would be that some housing markets have become more affordable with a larger inventory to choose from," said NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, W.Va. "But this is undeniably a crisis and Congress needs to act on housing stimulus to get the market moving again."
The two most affordable major housing markets in the country during the third quarter of the year were Indianapolis, Ind., and Youngstown, Ohio, according to the HOI. In both Indianapolis and Youngstown, 91.0 percent of homes sold in the third quarter were affordable to families earning the areas' median household incomes of $65,100 and $52,000, respectively.
Also near the top of the list for affordable major metropolitan areas were Grand Rapids-Wyoming, Mich.; Warren-Troy-Farmington Hills, Mich.; and Detroit-Livonia-Dearborn, Mich., in that order.
One smaller metro market (fewer than 500,000 people) outranked all others in terms of housing affordability during the third quarter of 2008 -- Springfield, Ohio, where 92.9 percent of all homes sold in the period were affordable to families earning that area's median household income of $54,500.
New York-White Plains-Wayne, N.Y.-N.J., was the nation's least affordable major housing market for the second consecutive quarter. In the New York market, 10.6 percent of the new and existing homes sold during the third quarter were affordable to those earning the area's median family income of $63,000.
Other major metro areas at the bottom of the housing affordability chart included San Francisco-San Mateo-Redwood City, Calif.; Nassau-Suffolk, N.Y.; Los Angeles-Long Beach-Glendale, Calif.; and Miami-Miami Beach- Kendall, Fla., in that order.
Among smaller metro areas, the other markets at the bottom of the affordability chart were San Luis Obispo-Paso Robles, Calif.; Santa Cruz-Watsonville, Calif.; Napa, Calif.; and Bend, Ore., respectively.
Please visit www.nahb.org/hoi for tables, historic data and details.
CACHET HOMES OFFERS HOMEBUYERS A “HOLIDAY BONUS” –
Cachet Homes, a leading luxury homebuilder in Arizona, is pleased to announce its inaugural “Holiday Bonus” sales event. From now until the end of the year, anyone who closes on an inventory home in any of Cachet’s premier communities – Cachet Homes at Verrado in Buckeye, Paseo Lindo or Crescent Falls and Serenity Shores at Fulton Ranch in Chandler, Cachet Homes at Blackstone in Peoria, Bel Canto at Mirabel and Encore at Grayhawk in Scottsdale and Cachet Homes at Carrara Estates in Gilbert – will receive up to 10 percent off the price of the finished home as well as $500 to donate to St. Mary’s Food Bank or the charity of the buyer’s choice. In keeping with the holiday spirit, Cachet can also move homebuyers into their new communities before the New Year.
“Rather than sit around and lament the current housing market, Cachet has chosen to give thanks for what it has while giving its homebuyers a special holiday discount and a chance to do good in the community,” said Diane Byrne, vice president of marketing for Cachet Homes.
In addition to the charitable contributions that will be made as a result of home sales, Cachet’s entire staff is also volunteering at St. Mary’s Food Bank on Dec. 12, as part of its annual holiday office celebration.
“Volunteering this year was actually a collective idea arising out of an office conversation,” said Byrne. “A comment was made that there are many worse off than us. This conversation gained momentum, and we started discussing what we could do as a company to reach out to those who needed us this holiday season.”
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