Construction outlook: Housing softens; non-residential remains strong
August 16, 2006
The single-family housing market is gliding toward a soft landing in 2006, as rising interest rates, affordability issues and a reduced role for investors/speculators contribute to a softening in demand, according to economists at the National Association of Home Builders (NAHB) Construction Forecast Conference held in April, and reported in the magazine Shelter.
But the non-residential construction market should remain fundamentally strong in the U.S. for decades to come, according to economist Brian Beaulieu, who spoke at the Safety Week 2006 gathering in June.
â€œItâ€™s pretty clear that the housing sector is in a period of transition,â€ said NAHB chief economist David Seiders. After three robust years, â€œsales and starts are trending lower toward more sustainable levels.â€
Jim Glassman, managing director and senior policy strategist with JP Morgan Chase & Co., predicted housing construction will remain strong â€” a good sign for safety distributors who have come to view the construction market as one of the most dynamic for personal protective equipment sales.
Economy keeps rollingâ€œIn the long-run it is reasonable to expect (housing) starts in the 1.8 million to 2 million range,â€ said Glassman. â€œHousing wonâ€™t continue to make the same contribution to the economy that it has. But when I think about where the economy is, I think weâ€™re in the fifth inning with a good chance of going into extra innings. This expansion may prove to be the longest one ever seen.â€
Beaulieu offered a similar forecast at Safety Week 2006. He sees the U.S. economy steaming through the remainder of 2006 and most, if not all, of 2007. Recession should hit just in time for the 2008 presidential election, he estimated.
At the NAHB conference, Glassman noted, â€œInflation is key to the longevity in the current economic expansion and to the underlying health of the building business.â€ Many economists applaud Federal Reserve Board policymakers for doing an excellent job of keeping inflation in check.
NAHB is forecasting that new home sales will hit 1.13 million units in 2006, down 12 percent from last yearâ€™s all-time high of 1.28 million units, and then move down slightly in 2007 to 1.09 million.
After posting a record 1.716 million single-family starts in 2005, NAHB is predicting that new home construction will level off to 1.595 million units in 2006 and 1.488 million in 2007, which would still rank high by historical standards.