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Construction Slide Could Continue in 2008

October 25, 2007

by Bruce Buckley

An overall decline in construction starts in the United States could prove more dire than originally thought. McGraw-Hill Construction, RECORD’s corporate affiliate, estimates that the industry experienced an 8 percent decline in construction starts in 2007 and it forecasts another 2 percent drop in 2008. This forecast was released today during McGraw-Hill Construction’s 2008 Construction Outlook conference in Washington, D.C.

After reaching a record $668.9 billion in total construction starts in 2006, values are expected to hit $626.7 billion for 2007 and $614.1 billion in 2008. Last year, McGraw-Hill Construction predicted that starts in 2007 would drop 1 percent, as the single-family housing market weakened and other sectors, such as institutional work, remained strong.

Robert A. Murray, vice president of economic affairs at McGraw-Hill Construction, said the turmoil in the sub-prime mortgage market that emerged in August has created a major concern for the construction industry and the overall economy. He added that tightening lending conditions will impact development in both residential and commercial real estate: “As a result, we’re now predicting downturns in the previously resilient multifamily and commercial segments, as well as continued weakness in single-family home construction.”

Single-family residential construction remains the main drag on overall construction starts, with a 25 percent plunge estimated in 2007. Declines will continue in 2008 but could ease considerably with dollar volume expected to decline an additional 3 percent, according to the report. Multifamily housing is also expected to slide 8 percent in 2008, to $56.4 billion, after a nearly 12 percent drop in 2007.

Faced with tightening lending standards, commercial buildings will take a hit as well, dropping 6 percent in 2008. After experiencing a 40 percent surge of growth in 2007, thanks in part to considerable development of ethanol plants, the manufacturing sector will retreat by 11 percent in dollar volume to $16.5 billion.

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Some trends are more positive for 2007, particularly in the public sector as many state and local governments remain fiscally strong, Murray said. Public works could realize a 3 percent gain to $120.95 billion in 2008. Highways and bridges are predicted to be a major contributor to growth, as renewed interest has been expressed in Congress for infrastructure improvements following the I-35W bridge collapse in Minneapolis in August. Public-private partnerships also continue to offer additional revenue sources. Murray said that the sector could see a 5 percent increase in construction starts to $56.9 billion in 2008.

Values of institutional building will also rise 4 percent to $118.7 billion next year, while square footage of those projects will remain essentially flat, experiencing a modest 1 percent increase. School construction will be a strong contributor to growth in the sector, rising 7 percent to $56.3 billion next year, while healthcare starts will flatten with a 1 percent drop predicted.

A version of this story first appeared on enr.com, the Web site of McGraw-Hill Construction’s Engineering News-Record.

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