Opportunity is ahead, ABC economist says

Listen to this article

Brad Carlson
Dolan Media Newswires

Boise, ID — Builders and building owners face continued tough sledding, but opportunities are emerging, the Associated Builders & Contractors Inc.’s chief economist said.

Office, retail and lodging construction “will be weak for years to come,” Anirban Basu said in an interview after a recent gathering of southwest Idaho ABC members and guests in Meridian, Idaho. Tight credit, regulatory restrictions on real estate lending and persistent job losses that reduce demand for business space are among factors.

“During times when real estate is in duress, you want to be a buyer rather than a supplier,” Basu said. Some efforts are under way to buy properties deemed undervalued — money is through investors and real estate investment trusts rather than bank loans in many cases, he said.

Problems continue in the banking sector, including some closures of regional banks that the federal government does not consider “too big to fail,” he said. Some of the big banks are performing better, though they continue to face risk and stepped-up regulatory scrutiny.

Basu told the group that federal stimulus spending is helping the economy, though he said more should have been directed to infrastructure such as the electrical grid, energy production and the air-traffic control system. State and local fiscal relief, and tax relief, are taking sizable shares.

Intense federal spending is expected in the next six to 12 months, “then, things will get worse again, potentially,” he said. The private sector will have to drive growth, a tough prospect given tight financing conditions and limited demand, he said.

An $8,000 federal tax credit for first-time homebuyers is boosting home sales, but the half of the market that does not involve first-time buyers continues to sag, said Basu, who is based in Baltimore. A search for value rather than luxury is seen in much of the housing market.

“The housing market still has several quarters of rough stuff ahead,” he said. Mortgage delinquencies and job losses continue to pressure the market, though buyers can find some advantages in negotiations. More foreclosures lie ahead.

Nonresidential construction is up in some sectors. From August 2008 to August 2009, spending on manufacturing-related construction increased 30.4 percent — companies retooled or relocated to stay competitive, Basu said. Construction spending related to the power industry increased 9.1 percent.

It was not the same story for commercial construction and office construction, which fell 22 percent and 33 percent, respectively, as job losses mounted, he said. Lodging construction shrank further, by 36 percent.

“The employer remains on the defensive, for a whole host of reasons,” Basu said.

All job categories but education and health services are shedding jobs, he said. The government segment was adding jobs until budget crunches forced many state and local governments to cut positions, he said.

Manufacturing has cut the most jobs — positions that will be refilled eventually, though not necessarily in the U.S., Basu said. Other hard-hit segments include construction, information, distribution, and jobs held by teenagers — unemployment in that category is up following an increase to the minimum wage, he said.

“Things could have been much, much worse,” Basu said.