Construction declining with housing

By Melissa Wirkus

As the housing market continues to slow we are seeing changes in the construction industry as well, as the two go hand-in-hand.

Now recent data has been reported saying that the construction industry is suffering right along with the housing market, which was inevitable in the end.

As a result of the housing slowdown, not as many new projects will be built and overall spending on construction is declining and is expected to decline further.

An October 27, 2006 article by Alex Frangos of The Wall Street Journal, “Housing decline sparks slowdown in construction,” explains how these two markets are both seeing declining numbers and discouraging figures.

“The unexpectedly rapid decline of the nation's housing market will mean an overall drop in construction spending next year, with spillover effects in areas such as job growth and real-estate development.”

Since so many jobs are related to the construction and housing industry, it would make sense that job growth may be negatively affected by a slowdown in both sectors.

“In a closely watched report expected to be released today, McGraw-Hill Construction will forecast the first decline in overall construction spending since 1991. The company says the value of new construction will decline 1% in 2007 to $668 billion, compared with an expected rise of 1% for 2006 and a 12% increase in 2005. McGraw-Hill said the anticipated decline was due mostly to a 5% fall in construction of single-family homes. But the overall drop also reflects a 3% slide in construction of stores and shopping centers, a component closely tied to population growth and home-building trends.”

Economists are worried because single-family housing has fallen faster and more than was originally expected. The health of the construction industry is closely tied to the housing market, especially the amount of new single-family homes that are built.
“The construction industry accounts for almost a tenth of economic activity, and its contraction could have a ripple effect through the economy as it is a major buyer of finished products and generator of jobs.”

All of this news comes right after a report was released by the Census Bureau saying that home builders have been forced to reduce the prices of their new homes in order to get them to sell.

“Although new-home sales for September rose 5.3% to a seasonally adjusted annual rate of 1.075 million, the median price fell to $217,100 from $240,400 a year earlier. That was the lowest price in two years and the biggest year-over-year decline since December 1970.”

As new reports and figures come in everyday, economists and analysts are left to figure out just how hard the market will fall and for how long will it last.

“Some of the negative effects from the housing slump are likely to linger well into 2007 and perhaps much longer. Some economists think housing prices will continue to drift downward through much of next year. That may damp consumer confidence, and it will diminish consumers' ability to borrow against their homes to finance spending. And foreclosures are expected to rise at least modestly; that could prolong weakness in housing as lenders dump properties on the market. ‘We're not out of the woods yet,’ says Peter Kretzmer, a senior economist at Bank of America in New York.”

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