Construction inactivity verifies slowdown
The housing bubble is slowly losing its air as a surplus of un-bought homes sits on the market, and builders have packed up their tool boxes.
The homebuilding industry has seen much better days than it is seeing right now. There has been a tremendous decrease in construction activity, verifying the fact we are in the midst of a tremendous slowdown within the housing industry.
An August 16, 2006 article by Chris Isidore of CNNMoney.com, “Builders hit the brakes,” discusses the slow homebuilding market.
Everyone knew that a slowdown was inevitable, following the boom of the years’ before, but things seem to be looking worse than originally expected.
“The closely watched home building market showed more signs of trouble Wednesday as a report showed builders slowed their pace of housing starts and building permits fell more than expected in July.
“Housing starts came in at an annual pace of 1.795 million, according to a Census Bureau report, down from the 1.84 rate in June, which was revised lower. It is also less than the forecast of 1.81 million of economists surveyed by Briefing.com. Building permits, seen as a measure of builder confidence, fell to an annual rate of 1.747 million from a 1.869 million pace. Economists had forecast a decline to 1.84 million.”
These numbers show the severity of the slow down. Analysts predicted that the downturn would not be that bad, but the reality of the situation has set in. Compared to the figures from last year, things are not looking so good.
“The slowdown is important because home building has become an important component of the U.S. economy. In the second quarter of 2005, investment in residences added 1.11 percentage points to the gross domestic product, the broad measure of the nation's economic activity. But in the second quarter it subtracted an estimated 0.4 percentage points.”
Analysts are preparing for the worst and are assuming that the slowdown will detract even further from economic growth in the future.
Because the construction industry grew so much in recent years, and added so many positions, the overall job market could take a hit as a result of the slowdown.
“But the sector has already trimmed nearly 25,000 jobs since January, according to Labor Department figures, and the slower housing starts and permits suggest even more slowing is ahead.”
“That slower outlook is also confirmed by a survey of members by the NAHB released Tuesday that showed builder optimism sank for a seventh consecutive month in August to its lowest level in 15 years.”
This slowdown does not only affect people in the industry, but the economy as a whole. Everyone feels the effects of a slowdown like this one.
“The slowdown in real estate has economic implications beyond builders' finances and payrolls. Home price appreciation has been a key driver in household wealth, and the cooling real estate market could also cut into consumer spending, as home owners are no longer able to tap into their home equity to finance their spending. Wednesday's housing starts report is just the latest sign that the white hot real estate market of 2005 may already be in a recession.”
