What does the Future Hold for the Construction Industry

It is almost July and the housing starts have not seen much improvement. This should be the peak of the season but it is just not happening. Economic forecasters are now saying that the U.S. housing market is not going to see much of a rebound in 2009 and a very slow increase over the next couple of years. This is mostly due to the lack of customer confidence in the economy turning around. Many people have worries of possibly being laid off from their job; the sense of job security is very low. Homeowners that would like to build, have little confidence that they could sell their existing home. Finally the concerns of the latest interest rate increases have knocked many out of the market.

With all of these mounding issues it is evident that the new home construction industry is going to continue to suffer for several years. Many have thought that the Green Building focus would help bring the U.S. housing market out of the slumps, but there are just too many factors that are holding it down. So it does not look like Green will save the day.

The big concern that is not talked about in the many news articles is the fact that the U.S. is going to be faced with much higher priced material in the future. This might not make sense based on the low demand but a major change is happening in the supply chain that will have a dramatic effect on the price of materials.

First we have material supply yards closing at an alarming rate because they can not afford to remain open. Stock Building Supply has just completed a chapter 11 restructure with more than two thirds of its locations closing. BMC West is just going into chapter 11 and many small family owned yards are closing or going bankrupt. This is happening in lumber, windows, doors, roofing, drywall, electrical and plumbing yards across the country.  The wholesale companies are facing the same problems. But this even goes to mills and manufacturing facilities.

The prices of many of home building products are based on supply and demand. The demand is low and the supply is getting lower. The prices of many products so low the mills or manufacturers can not make any money, so they have stopped production. When this market decides to turn around then prices will go through the roof, there will just not be enough supply to keep up with even the smallest increase in demand. This process will make it even harder for people to afford to start a home and slow the recovery of new housing starts.

So the next several years will be a difficult one for anyone in the housing industry.