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The Construction Market Landscape

12/1/2011

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Written by Doug Bevill, President of Construction Economics & Strategies, LLC. Since the crash of 2008 there have been many opinions offered as to how significant the correction in the construction industry will be and when it will return to the levels we enjoyed from 2004 to 2008. The short and factual answer is that the construction industry has taken its worst hit since the Great Depression. This hit has led to significant shifts in channel behaviors, which can be attributed to the evolution of the new economic landscape in the construction industry.
To put things into perspective, it is important to understand just how much the industry has constricted and how this ever-constricting market is impacting behavior in the AEC space. In 2006, residential construction spending reached its peak of $6.9 billion. Then, in 2007, the housing market started to show the results of the subprime lending practices of the past several years. We all know how this ended up playing out: with the world teetering on the edge of a global economic crisis at the end of 2008, mainly due to a massive housing and commercial real estate bubble.
Residential construction continued to lose ground in 2008, ending at a total of approximately $2.8 billion, a staggering loss of over $4 billion. However, that was only the beginning. In 2009, the construction of commercial properties came to a screeching halt as property values dropped and banks found they were unable to lend due to the mounting toxic assets on their books. Below is a graph showing the decline in spending on residential, commercial and institutional buildings with a year-to-year percentage change.
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