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Slowdown Inevitable - But When?

By Katie Rotella
June 16, 2000
Conflicting reports can't pinpoint an exact date of construction slowdown, but analysts agree it is inevitable.

Conflicting reports and forecasts can't pinpoint an exact date of construction slowdown, but analysts agree that slowdown is inevitable. However, economists continue to be optimistic about the economy as a whole.

The boom in early-1999, fueled by low interest rates and low unemployment, is now cooling off after a brief surge last October due to deferred activity and property damage caused by Hurricane Floyd.

Higher mortgage rates (7.9 percent for fixed-rate mortgages and 6.3 percent for adjustable-rate loans) set by the Fed has already begun to dampen homebuyer demand. Business typically slows this time of year, but order books and prices have fallen sharply. Many analysts are still optimistic about the industry in 2000.

"Some slowdown is not something we would view as an evil," said David Seiders, chief economist for the National Association of Home Builders (NAHB). Tight labor and low availability of construction materials have been giving contractors a difficult time keeping up with demand. But even with a slowdown, the industry will still show better results. And it won't be a recession - just a backing away from record activity levels, sources say.

Economists in The Wall Street Journal's semiannual economic-forecasting survey in January were downright "euphoric" about year-2000 prospects. Strong consumer spending, rising business productivity and "tame inflation" were cited as the reasons to expect continued growth. This could prove to be the longest economic expansion in U.S. history.

Total housing production for 1999 was near 1.659 million units, a 2.2 percent increase from 1998. Housing construction in 2000 is projected to drop 7.5 percent to 1.535 million units.

Nearly 16 million acres of land were converted to urban uses from 1992 to 1997, with 5.6 million single-family homes and 1.2 million multifamily units being built in that five-year period. It represents less than seven-tenths of 1 percent of the nation's landmass.



Room For Growth

Labor Department statistics report that three of every four new jobs created in urban markets are located outside of a central city. Suburbs are growing faster because that's where Americans are choosing to live and work.

The West and South will perform better than the nation as a whole due to solid employment and population growth. The Northeast lags behind because of continuous population losses, especially in New York, Pennsylvania and southern New England states.

The overall U.S. population will increase by 30 million between now and 2010. About 1.3 new units of housing will need to be built to meet these new demographic demands.

Sara Johnson, chief regional economist at Standard & Poor's DRI, ranked Nevada, Arizona, Florida, Colorado and Utah as the top five states to show the most significant employment growth over the next five years. The top 10 large metro areas in her forecast include Las Vegas, Phoenix, Austin, Orlando and Tucson.

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Katie Rotella was the senior editor of Plumbing & Mechanical from 1999-2009.

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