Construction Forecasts

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The Impact of a Recession on Residential Construction Spending

09/09/2011 by Bernard M. Markstein, RCD US Chief Economist

This section presents the impact of our alternative forecast of a recession on residential construction spending. The recession forecast is not our view of what is most likely to happen but is of high enough probability (30%) to provide this alternative forecast. The table below shows the outlook based on our recession forecast with a comparison of the percentage changes to our baseline (main, most probable) forecast numbers. See The Impact of a Recession on the Construction Outlook for an overview of our recession forecast.

Residential construction, already weak due to difficulty in obtaining credit for both builders and prospective buyers and the overhang of foreclosed properties in many markets, would take another hard hit in a recession. Existing home owners will find it even more difficult to sell their homes, further slowing an already slow moving residential real estate market. Most of the remaining single-family construction activity will be for smaller, less expensive homes aimed at the first-time buyer. Multifamily projects will find financing more difficult to obtain, delaying or halting some projects. Job losses are likely to reverse some of the recent gains in the rental market as people are forced back into joint living arrangements due to economic circumstances in 2012, limiting the growth of households and demand for rental properties. The rental market will start to recover in 2013, gaining momentum in the following years, improving the outlook for the return on multifamily rental projects.

U.S. Residential Building Construction
(thousands of units)

  Monthly Figures (1)
(latest actual values)
Annual Figures
  Actual Forecast
  May-11 Jun-11 Jul-11 2007 2008 2009 2010 2011 2012 2013
Northeast starts (% change is period versus 56 72 97 143 121 62 71 73 65 81
   same period, previous year) -21.1% 10.9% 27.8% -14.5% -15.4% -48.8% 15.2% 2.4% -11.0% 24.6%
Baseline Forecast YOY % Change               2.0% 19.2% 26.4%
Midwest 99 122 76 210 135 97 98 86 77 92
-1.8% 39.6% -20.4% -24.9% -35.8% -28.0% 0.8% -12.1% -10.5% 19.5%
Baseline Forecast YOY % Change               -0.9% 5.2% 6.6%
South 264 287 303 681 453 278 297 291 273 301
-8.6% -0.7% 11.3% -25.2% -33.4% -38.7% 6.9% -2.2% -6.2% 10.3%
Baseline Forecast YOY % Change               1.2% 18.2% 17.7%
West 134 132 128 321 196 117 120 123 112 132
15.9% 20.4% 19.6% -27.7% -38.8% -40.4% 2.7% 2.5% -8.9% 17.9%
Baseline Forecast YOY % Change               5.1% 11.1% 15.7%
Total 553 613 604 1355 905 554 587 573 527 606
-3.9% 11.7% 9.3% -24.8% -33.2% -38.8% 6.0% -2.4% -8.0% 15.0%
Baseline Forecast YOY % Change               1.7% 14.7% 16.8%
Total Single-family 416 447 425 1046 622 445 471 417 403 451
-8.1% -2.0% -1.2% -28.6% -40.5% -28.5% 5.9% -11.5% -3.4% 11.9%
Baseline Forecast YOY % Change               -9.1% 9.2% 11.0%
Total Multifamily 137 166 179 309 283 109 116 156 124 155
12.0% 86.7% 49.1% -7.9% -8.3% -61.6% 6.3% 34.7% -20.5% 25.0%
Baseline Forecast YOY % Change               48.1% 28.9% 29.3%
New Home Sales (2)  309 300 298 776 485 374 322 295 283 317
11.5% 0.0% 3.8% -26.2% -37.5% -22.9% -13.9% -8.4% -4.1% 12.0%
Baseline Forecast YOY % Change               -6.1% 15.2% 26.3%
Manufactured Home Shipments 49 53 44 96 82 50 50 47 45 49
-10.5% -7.7% -13.8% -18.4% -14.5% -39.3% 0.7% -6.1% -4.3% 8.9%
Baseline Forecast YOY % Change               -1.8% 13.4% 13.5%

(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
Forecasts and table: Reed Construction Data.


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