Financial District: Home Sweet Homes

Residential market shows signs of life – and that may be a little good news for highway contractors

Financial-chartThe National Association of Realtors estimates that 30 percent of all existing residential properties sold during July, August and September of 2009 consisted of foreclosed or otherwise distressed properties. This continues to limit new residential construction activity. In California, for example, although July-September sales were about 4 percent better in 2009 than 2008, the number of residential building permits issued through September of last year was still running almost 50 percent behind the 2008 pace.

At last, residential market activity is improving. It is possible this uptick may have the power to pull some of the contractors who ventured away from the residential market and into highway work as the economy sank, back to their old stomping grounds. That could at least ease the cut-throat competition we are seeing in bidding for highway projects, especially stimulus contracts. Unfortunately the improvement is occurring at an excruciatingly slow pace.

The residential sector of the economy contributed positively towards overall Gross Domestic Product (GDP) during the third quarter of 2009, marking the first time since late 2005 that housing market activity added rather than subtracted from economic growth in the U.S. Still, following years of steady decline, the residential sector has a much-diminished impact on GDP than earlier in the decade. In 2005, the residential investment component of GDP accounted for 6.1 percent of all economic activity in the nation. Even with a strong uptick in the sector during last year’s third quarter, though, housing market activity contributed only 0.4 percent of the 2.8 percent annualized growth in the quarter and represented only 2.5 percent of the total value of all economic activity measured during July-September of 2009.

Over-the-year trends in residential market indicators continued to slowly improve (that is, grow less negative when compared to the 2008 totals) as we moved into the final months of 2009. But recovery in new housing construction has yet to really take hold. Home sales (both new and existing) recorded strong gains between September and October, but housing starts declined a bit after a few months of modest increase.

The total number of residential units permitted throughout the United States during the first 10 months of 2009 was 40.5 percent less than over January-October of 2008. Overall residential building permit totals were lower than a year ago through the first 10 months of 2009 in all states of the nation except North Dakota (up about 5 percent, but totaling only 2,793 housing units – barely one-half-of-one-percent of the overall U.S. total.)

Construction sector employment declined in 49 of the nation’s 50 states between October 2008 and October 2009.

Four states recorded losses of more than 20 percent in construction jobs over this twelve-month period: Nevada, Arizona, Tennessee and Kentucky. Total payroll jobs in the U.S. declined by 4 percent over the past year; construction sector jobs plunged a much steeper 14.9 percent over the twelve months ending last October.

Against this overwhelmingly negative backdrop, four metropolitan areas of at least moderate size (i.e., those counting 1,000 or more housing permits through the first ten months of 2009) recorded double-digit over-the-year increases in total residential-unit permits: Jacksonville (NC), Augusta (GA), Fargo (ND) and Salt Lake City (UT).

However, only of 47 of the 362 metro areas of all sizes tracked in summary form by the Census Bureau managed to record a greater number of residential permits through October of 2009 than through the first ten months of 2008.

Among the major metropolitan areas recording declines of more than 60 percent from year-ago levels over the first ten months of 2009 were New York, Atlanta, Chicago and Raleigh. The nation’s two highest-volume housing markets – Houston and Dallas-Ft. Worth – saw permit counts decline by more than 40 percent over the year.

Nevertheless, while there’s virtually no chance that housing will exhibit gangbusters growth during the year ahead, there’s every likelihood that private residential sector gains will far exceed any gains that private commercial development (office, retail, hotels, etc.) might eke out over the course of 2010. Congress has extended the $8,000 home buyer tax credit until the end of April (it was originally scheduled to expire on 11/30/09) and expanded eligibility to a larger number of potential buyers. So it’s expected that this additional market stimulus will keep home sales moving forward — and ultimately lead to a solid pick up in new construction activity, as well.v