Already shell-shocked from the crumbling credit market and its impact on funding for non-residential construction projects, the 400-plus construction executives who attended McGraw-Hill’s 2009 Construction Outlook on Oct. 23 in Washington, D.C., got more bad news at the meeting from several of the nation’s leading construction economists for 2009.
Robert Murray, vice president of economic affairs for McGraw-Hill Construction, told the standing-room only audience that he is forecasting a 7 percent decline in total construction for 2009, but said that the relatively mild rate of decline (compared to some of the numbers you see in the housing market and other market sectors) will only hold up if the federal stimulus package works. If it doesn’t, he sees much more trouble. "The basic assumption is that the extraordinary steps to deal with the credit freeze will be successful with time. If not the numbers will be lower." He doesn’t see any sustained momentum revving up the construction market until the second half of 2009.
The projected 2009 decline of 7 percent to $515 billion in total construction spending follows McGraw-Hill Construction’s forecast for a 12 percent decline to $555 billion in 2008. Murray said the speed and scope of the events in September and October were "startling."
"Tighter lending standards are a major constraint for the construction industry," he said. "For single-family housing, declines are continuing and showing no sign of an upturn. Home prices are continuing to drop, a 20-percent drop so far this year, and we expect another 10 percent decline through the first half of 2009. Then, things should level off. Store construction has taken the biggest hit; we’re looking at a 30 percent decline in retail square-footage starts this year."
Declining economic conditions in the construction business are affecting the market on various fronts. John Mothersole, principal, industry practices, Global Insight, is probably the nation’s foremost authority on construction material pricing. He said the collapse in copper pricing "is as spectacular as any I have seen." "We haven’t reached the floor yet," he said. "The price decline has moved so far so fast it’s head turning."
Kermit Baker, chief economist, American Institute of Architects (AIA), said the decline in the housing market was of epic proportions. "By any measure, this is shaping up to be the worst housing market in the last 50 years," he said.
Here are forecasts for other key segments of the construction market from McGraw-Hill’s 2009 report.
- Electric utility construction will retreat 30 percent after surging 55 percent to a near record amount in 2008.
- Public works construction will fall 5 percent, given flat funding at the federal level combined with restraint by state and local governments.
- Manufacturing buildings will plunge 32 percent in dollars after an exceptional 2008 that was lifted by the start of several massive oil refinery expansion projects.
- Institutional buildings will slip 3 percent in dollars and 6 percent in square feet, as the financial crisis affects funding coming from states and localities.
- Commercial buildings will drop 12 percent in dollars and 15 percent in square feet, similar to the declines experienced in 2008. Stores and warehouses will continue to lose momentum, the office correction will be steeper, and hotel construction will finally pull back after its lengthy boom.
- Multi-family housing will retreat 6 percent in dollars and 8 percent in units, after the sharp plunge witnessed during 2008.
- Single-family housing for 2009 will be down 2 percent in dollars, corresponding to a 4 percent drop in the number of units to 560,000.