As interest rates remain elevated, some market participants have questioned the extent to which the maturity wall in the below…
Although the broad economy has grown steadily since the beginning of 2009, the construction sector remains mired in a state of recession. Construction employment peaked at the end of 2006 as the housing bubble began its collapse. Currently, the unemployment rate of the construction sector stands at 21.8%. This is primarily contingent upon the fact that residential construction is at its lowest annual rate since records began in 1959. Unfortunately for the construction sector, there is little indication that residential construction will pick up in the short term. The National Association of Realtors is forecasting that new housing starts will slowly increase from its current annual pace of approximately 500,000 to 900,000 in the second quarter of 2012, which is substantially less than the historical annual average of 1,500,000.
At the current sales pace of existing homes, there is 8.6 months of supply on the market. Most industry analysts consider 6 months a healthy supply of homes. When taking into consideration the shadow inventory of homes (homes in the early stages of foreclosure process not currently listed) the condition is much worse. Additionally, approximately 40% of sales in the past month were either foreclosures or short sales which drive down the median price of existing home and make new homes (new construction) look less attractive from a price point. The road to recovery in the construction sector will be a slow one, but at least there has been some stabilization in the number of construction jobs (5,500,000) since the midpoint of 2010.
The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
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