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By the Numbers
By: Carol Brzozowski
If there is a message to take to heart from the current economic slump
that’s affecting residential construction, it’s this dichotomy: the glass is
half empty/the glass is half full.
On one hand, the industry cannot afford to bury its face in the sand and
pretend there isn’t a problem. There is. Admitting it is seeing the light:
that awareness is akin to turning a flashlight on in a dark room. Only by
doing so can you find your way out.
On the other hand, the sky isn’t falling, so there’s no need for Chicken
Little-type reactions.
Some areas of the country are not only holding their own, but thriving.
Commercial building is taking up some of the slack left by residential.
While people aren’t moving into new homes (and indeed, some areas of
the country are nearly built out anyway) they are rehabilitating the ones
they have, which means construction equipment is still in use.
If there is a message to take to heart from the current economic slump
that’s affecting residential construction, it’s this dichotomy: the glass is
half empty/the glass is half full.
On one hand, the industry cannot afford to bury its face in the sand and
pretend there isn’t a problem. There is. Admitting it is seeing the light:
that awareness is akin to turning a flashlight on in a dark room. Only by
doing so can you find your way out.
On the other hand, the sky isn’t falling, so there’s no need for Chicken
Little-type reactions.
Some areas of the country are not only holding their own, but thriving.
Commercial building is taking up some of the slack left by residential.
While people aren’t moving into new homes (and indeed, some areas of
the country are nearly built out anyway) they are rehabilitating the ones
they have, which means construction equipment is still in use.
And here’s a kicker: while the private residential construction sector has slowed down considerably, the numbers
show that spending in the public arena (federal, state and local government) has been steadily on the rise from
January through June.
In June, the government put out $285 million into construction projects nationwide, with state and local
governments making the biggest investments.
Money was being infused into the following construction sectors: office, commercial, educational, public safety,
transportation, sewage and waste disposal and conservation and development.
Public construction spending has declined only slightly in health care, amusement and recreation, power, highway
and streets and water supply.
For the individual portable sanitation operator, the answer to whether he or she will get through the economic
slump is this: ‘It depends’.
It depends on what area of the country in which a business is located. It depends on the extent to which the
business relies on construction. It depends on whether the business has a sole purpose or is diversified. It depends
on the financial status of the business prior to entering the slump.
It depends on whether the business owner has the guts to tighten the company’s belt, learn lessons from this and
move into a new direction with confidence.
Here is the reality:
New residential construction is one of the key economic indicators in the United States and its ripple effects have a
wide circumference.
According to a joint release of the U.S. Census Bureau and the Department of Housing and Urban Development
through the U.S. Department of Commerce’s Economics and Statistics Administration, the latest statistics for new
residential construction – released in August – indicate percentage drops in building permits, housing starts, and
housing completions.
In building permits, the current numbers of 1.3 million indicate a 5.9 percent drop in August compared to July and
a 24.5 percent drop from August 2006.
Privately-owned housing starts of 1.33 million are 2.6 percent below July and 19.1 percent below August 2006.
Single-family housing starts in August were at a rate of 988,000, which is 7.1 percent below the July figure. The
August rates in buildings with five units or more was 311,000.
Housing completions for August were at 1.5 million, which was less than one percent down from July and 19
percent lower than August 2006.
Within those numbers are regional differences. The hardest-hit area is the South, with a 28.2 percent decrease in
new privately-owned housing units authorized in permit-issuing places, followed by the Midwest at 27.6 percent,
the West by 20.1 percent and the Northeast by 10.7 percent.
The numbers are different for new privately-owned housing units that were authorized, but not started: the
Midwest posted a 29.3 percent decrease over last year, followed by the South at 18.8 percent, the West at 7.1
percent and the Northeast at 3.2 percent.
In terms of new privately-owned housing units started, the highest decrease is in the Northeast at 39.2 percent,
followed by the West at 31.6 percent, the South at 15 percent, and the Midwest at less than one percent.
The numbers of new privately-owned housing units under construction showed the biggest decrease in the South at
21.5 percent, followed by the Midwest at 13.9 percent, the West at 12.4 percent and the Northeast by a three
percent decrease.
As for new privately-owned housing units completed, the biggest decrease over a year is in the Midwest at 46.1
percent, followed by the South at 14.4 percent, the West at 13 percent and the Northeast at 9.4 percent.
Consider also the news from the Beige Book, published by the Federal Reserve Board, which has 12 districts
nationwide. The Beige Book is a compilation of reports on economic conditions in each Federal Reserve district.
As of August 27, the Beige Book reports that “residential real estate and construction weakened further in most
districts while the commercial market remained steady. Most districts reported weak or declining residential sales
and declining or stable prices.”
There are some markets showing strength. Sales and prices have been increasing in the Massachusetts housing
market; the New York City apartment market remains tight as rents rise, and home sales rose in Louisville.
“Inventories of unsold homes are generally reported to be high,” the book reports. “Moreover, contacts in
Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and Dallas believe softness in the market will
continue in the near future, with potential for further declines.”
However, commercial real estate and construction markets report “stable to expanding” in such areas as
Philadelphia, Minneapolis, and San Francisco in nonresidential construction and commercial real estate.
Dallas reports a high level of nonresidential construction activity and St. Louis reports strength in commercial
construction.
“New York, Cleveland, Richmond, Atlanta, Chicago, and Kansas City indicated commercial construction and real
estate markets were steady or stable,” the report reads. “Vacancy rates are reported to be low or declining in most
Districts, and rents are rising modestly in many. Boston, New York, Richmond, Chicago, Kansas City, and Dallas
noted some tightening of credit in the commercial real estate market.”
The construction industry’s own trade association, the National Association of Home Builders, has responded to
the effect that mortgage market problems have had on buyer demand by exhibiting their own decline in confidence.
The National Association of Home Builders(NAHB)/Wells Fargo Housing Market Index (HMI) had dropped two
points to 20, tying its record low reached in January of 1991.
The HMI is an index of more than 300 homebuilders and indicates the demand for new homes and is used as an
indicator for economic growth. The HMI ranges from 0 to 100, with a 50 meaning new home demand is average.
The recent 20 HMI is part of a seven-month train of declining numbers.
There are three components to HMI, and two of the three declined in September.
The index gauging current single-family home sales declined two points to 20, while the index gauging sales
expectations for the next six months fell five points to 26. The index gauging traffic of prospective buyers held
steady at 16 for the month.
All four regions of the country reported declines in their September HMI readings. The Northeast posted a three-
point decline to 26, while the Midwest posted a single-point decline to 13, the South posted a two-point decline to
22, and the West posted a four-point decline to 18.
“Builders are expressing concern that home buyers are getting spooked by the many headlines they are seeing on
mortgage market issues and their continuing effects on the housing market and home prices,” says NAHB President
Brian Catalde, a home builder from El Segundo, California in a media statement. “Indications are that consumers are
trying to time the bottom of the market before making their purchase, which historically can be a very tricky thing
to do and is typically not an advisable strategy. The bottom line is, with the inventory situation what it is and the
selection of units and deals to be had, now is a very good time to buy a home.”
NAHB Chief Economist David Seiders is exhibiting some optimism: “Certainly problems across the mortgage
finance arena are taking their toll on buyer demand, which is weighing heavily on builder confidence measures,” he
says in a media release. “Even so, availability of mortgages under the government-supported part of the market
remains very good, and the long-term fundamentals of housing are solid in terms of projected household
formations, income growth and other factors.”
Seiders says he expects to see home sales return to an upward path by the second quarter of 2008 and housing
starts to begin a gradual recovery process by the third quarter of next year.
“At that point, the market will have substantial growth potential,” he notes.
show that spending in the public arena (federal, state and local government) has been steadily on the rise from
January through June.
In June, the government put out $285 million into construction projects nationwide, with state and local
governments making the biggest investments.
Money was being infused into the following construction sectors: office, commercial, educational, public safety,
transportation, sewage and waste disposal and conservation and development.
Public construction spending has declined only slightly in health care, amusement and recreation, power, highway
and streets and water supply.
For the individual portable sanitation operator, the answer to whether he or she will get through the economic
slump is this: ‘It depends’.
It depends on what area of the country in which a business is located. It depends on the extent to which the
business relies on construction. It depends on whether the business has a sole purpose or is diversified. It depends
on the financial status of the business prior to entering the slump.
It depends on whether the business owner has the guts to tighten the company’s belt, learn lessons from this and
move into a new direction with confidence.
Here is the reality:
New residential construction is one of the key economic indicators in the United States and its ripple effects have a
wide circumference.
According to a joint release of the U.S. Census Bureau and the Department of Housing and Urban Development
through the U.S. Department of Commerce’s Economics and Statistics Administration, the latest statistics for new
residential construction – released in August – indicate percentage drops in building permits, housing starts, and
housing completions.
In building permits, the current numbers of 1.3 million indicate a 5.9 percent drop in August compared to July and
a 24.5 percent drop from August 2006.
Privately-owned housing starts of 1.33 million are 2.6 percent below July and 19.1 percent below August 2006.
Single-family housing starts in August were at a rate of 988,000, which is 7.1 percent below the July figure. The
August rates in buildings with five units or more was 311,000.
Housing completions for August were at 1.5 million, which was less than one percent down from July and 19
percent lower than August 2006.
Within those numbers are regional differences. The hardest-hit area is the South, with a 28.2 percent decrease in
new privately-owned housing units authorized in permit-issuing places, followed by the Midwest at 27.6 percent,
the West by 20.1 percent and the Northeast by 10.7 percent.
The numbers are different for new privately-owned housing units that were authorized, but not started: the
Midwest posted a 29.3 percent decrease over last year, followed by the South at 18.8 percent, the West at 7.1
percent and the Northeast at 3.2 percent.
In terms of new privately-owned housing units started, the highest decrease is in the Northeast at 39.2 percent,
followed by the West at 31.6 percent, the South at 15 percent, and the Midwest at less than one percent.
The numbers of new privately-owned housing units under construction showed the biggest decrease in the South at
21.5 percent, followed by the Midwest at 13.9 percent, the West at 12.4 percent and the Northeast by a three
percent decrease.
As for new privately-owned housing units completed, the biggest decrease over a year is in the Midwest at 46.1
percent, followed by the South at 14.4 percent, the West at 13 percent and the Northeast at 9.4 percent.
Consider also the news from the Beige Book, published by the Federal Reserve Board, which has 12 districts
nationwide. The Beige Book is a compilation of reports on economic conditions in each Federal Reserve district.
As of August 27, the Beige Book reports that “residential real estate and construction weakened further in most
districts while the commercial market remained steady. Most districts reported weak or declining residential sales
and declining or stable prices.”
There are some markets showing strength. Sales and prices have been increasing in the Massachusetts housing
market; the New York City apartment market remains tight as rents rise, and home sales rose in Louisville.
“Inventories of unsold homes are generally reported to be high,” the book reports. “Moreover, contacts in
Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and Dallas believe softness in the market will
continue in the near future, with potential for further declines.”
However, commercial real estate and construction markets report “stable to expanding” in such areas as
Philadelphia, Minneapolis, and San Francisco in nonresidential construction and commercial real estate.
Dallas reports a high level of nonresidential construction activity and St. Louis reports strength in commercial
construction.
“New York, Cleveland, Richmond, Atlanta, Chicago, and Kansas City indicated commercial construction and real
estate markets were steady or stable,” the report reads. “Vacancy rates are reported to be low or declining in most
Districts, and rents are rising modestly in many. Boston, New York, Richmond, Chicago, Kansas City, and Dallas
noted some tightening of credit in the commercial real estate market.”
The construction industry’s own trade association, the National Association of Home Builders, has responded to
the effect that mortgage market problems have had on buyer demand by exhibiting their own decline in confidence.
The National Association of Home Builders(NAHB)/Wells Fargo Housing Market Index (HMI) had dropped two
points to 20, tying its record low reached in January of 1991.
The HMI is an index of more than 300 homebuilders and indicates the demand for new homes and is used as an
indicator for economic growth. The HMI ranges from 0 to 100, with a 50 meaning new home demand is average.
The recent 20 HMI is part of a seven-month train of declining numbers.
There are three components to HMI, and two of the three declined in September.
The index gauging current single-family home sales declined two points to 20, while the index gauging sales
expectations for the next six months fell five points to 26. The index gauging traffic of prospective buyers held
steady at 16 for the month.
All four regions of the country reported declines in their September HMI readings. The Northeast posted a three-
point decline to 26, while the Midwest posted a single-point decline to 13, the South posted a two-point decline to
22, and the West posted a four-point decline to 18.
“Builders are expressing concern that home buyers are getting spooked by the many headlines they are seeing on
mortgage market issues and their continuing effects on the housing market and home prices,” says NAHB President
Brian Catalde, a home builder from El Segundo, California in a media statement. “Indications are that consumers are
trying to time the bottom of the market before making their purchase, which historically can be a very tricky thing
to do and is typically not an advisable strategy. The bottom line is, with the inventory situation what it is and the
selection of units and deals to be had, now is a very good time to buy a home.”
NAHB Chief Economist David Seiders is exhibiting some optimism: “Certainly problems across the mortgage
finance arena are taking their toll on buyer demand, which is weighing heavily on builder confidence measures,” he
says in a media release. “Even so, availability of mortgages under the government-supported part of the market
remains very good, and the long-term fundamentals of housing are solid in terms of projected household
formations, income growth and other factors.”
Seiders says he expects to see home sales return to an upward path by the second quarter of 2008 and housing
starts to begin a gradual recovery process by the third quarter of next year.
“At that point, the market will have substantial growth potential,” he notes.
Just Hang on
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Serving the American Liquid Waste Industry Since 2002