Sustainable Land Development Today - January 2008 - (Page 12) Industry Outlook Darkest Before the Dawn Title Subtitle By Author 2008 poses challenges, but what about opportunities? By Tony Wernke, Greg Yoko, and Rob Kundert It’s your classic good-news, badnews scenario. Which do you want first? The economics in our industry are clearly upside down for many at this point in time. Painting a rosy picture only serves to ignore the realities that have been punctuated by the shock waves from the subprime mortgage debacle that exploded onto the scene in late summer. Yet there may be a silver lining in this cloud. Like every other economic downturn, the cyclical nature of business means that for those who can to take advantage of current conditions (i.e. lower costs, a lighter work load, etc.); it is an opportunity to strengthen their business. This may materialize through an upgrade of their operations or implementing strategic plans that lay the foundation for the future. Socially, Americans continue to be on the move as the population shifts, particularly to points south. Continued concerns over global warming and rising energy prices have captured the public’s attention and are augmenting the strength of the “green” movement and the development and implementation of sustainable products, practices and procedures. Politically, the pace of campaign advertising will accelerate through 2008 until the voters decide the political control of the White House and Congress. Meanwhile, posturing by both major political parties will make for little achievement on Capital Hill. However, some legislation is making its way through that could be beneficial. 12 January 2008 Sustainable Land Development Today The key in 2008 will be a clear review of the national and world situation and how it affects you and your operation. Caution may be a wise approach going forward. However, be aware that slow economies can offer unique opportunities that are not there during boom times. Not surprisingly, Sustainable Land Development Today subscribers indicated in a survey that their biggest concerns heading into 2008 were the housing market (57 percent), local economy (44 percent), and government regulations (43 percent). the housing market, the U.S. economy has managed to remain steady with most experts acknowledging modest growth under the circumstances. Preliminary indications point to a two percent growth total for 2007. This is despite an almost continuous decline in single-family home construction since the record high water mark in 2005. The slowdown began in 2006 and continued this past year. The drop in construction starts for 2007 came in at eight percent, the largest decline since 1990 when it hit nine percent, according to figures in McGrawHill Construction’s Construction The Economy In late November, the Bush administration reduced its forecast for U.S. economic growth in 2008 and acknowledged that problems in the housing market were greater than expected. The White House has predicted 2008 growth in real gross domestic product at 2.7 percent, down from the 3.1 percent it had projected in June. The forecast will be used in the administration’s fiscal 2009 budget proposal that it will submit early this year. Edward Lazear, chairman of the White House Council of Economic Advisers, said that the level of growth is still solid, especially in light of the downward slide in the housing market. Meanwhile, the Federal Reserve projects real growth in gross domestic product (GDP) to range from 1.8 percent to 2.5 percent in the new year. The recent past illustrates that even with a sharper decline than expected in Outlook 2008. In August 2007, the excess inventory of homes was compounded by recent homebuyers’ problems making house payments on adjusted subprime mortgages. The result has been a ripple effect throughout the industry as builders, developers, and contractors joined homebuyers, mortgage lenders, and traditional banks in feeling the affects. When the subprime crisis first hit, new home sales dropped eight percent to just 795,000 units on an annualized basis, recording the lowest monthly rate since June of 2000. The numbers for multi-family housing took a more drastic dive in 2007. There is a typical lag in the impact to this market segment due to longer development planning and construction processes. For instance, when the single-family market started its significant decline in 2006, multi-family hous-
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