Construction Spending Hits Record in Feb

Spideykid · Tar Sands Joined: Apr 22, 2005 Posts: 65

One has to wonder what the heck is going on.

NeoPeasant

How much of this increased construction spending is actually increased material and energy costs? Is more being built or is the same level of construction costing more?

I predict that residential construction will crash rather abruptly when several builders are forced to sell a streetload of spec houses at a loss and then default on their business loans. The cost of building is climbing just as the ability of potential buyers to finance mortgages and bear the transportation and utility costs of suburban living is eroding. The big spectacular crash is still to come.
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The battle to preserve our lifestyle has already been lost. The battle to preserve our lives is just beginning.

jaws · Light Sweet Crude Joined: Apr 24, 2005 Posts: 1257

The builders aren't stupid. They saw the blubble crash coming from a year away, and were prepared for it when it came. They were the first to slash prices while everyone else was still in denial.

While prices are no longer increasing, they're still high enough to justify building new houses. That's what they're going to do.

hoplite · Heavy Crude Joined: Oct 22, 2004 Posts: 300

10 years ago we built homes for ~60-70 per sq. foot and sold for 100/sq. ft. (Bay Area, Northern California) Today we're building for 70-100/sq. ft. and selling for 200! We're slowing down on production and we're decreasing our spec level somewhat but we have a LONG way to go before this down cycle begins to hurt us. I was at a meeting the other day and the executive team considers this down cycle to be more of an opportunity to increase the land bank than anything else. WE (the builders) can easily reduce our prices by 50% (or more...) and still make a ton of dough! There is no doubt though, that all these IDIOTS with the ARMs/HELOCS/Interest Only products are going to crash and burn when the ability to escape that $4,000 mortgage payment by selling the house evaporates. Most people who bought in the last two years are now upside down on their loans and they don't even know it yet!

shortonoil · Fission Joined: Dec 02, 2004 Posts: 2752 Location: VA USA

hoplite · Heavy Crude Joined: Oct 22, 2004 Posts: 300

gego · Light Sweet Crude Joined: Mar 03, 2005 Posts: 1334

If you go to work everyday, then you assume that the work you do will result in satisfying someone's need.

Contractors cannot just one day decide not to work. They build houses and sell them. If they don't sell houses, eventually they cannot finanace an additional new house to build. So it is not that contractors resopnd immediately to the desires of home buyers; rather they respond to their own inability to pay for building one more house until they have disposed of existing inventory.

Construdtion starts are a lagging indicator. Inventory of unsold homes is a concurrent indicator, so record construction spending is history, not a predictor of the future.

Wake up and smell the roses!

cudabachi