MorrisAnderson

State of the Industry

• The construction industry has endured nearly four years of declines and hardships, and the outlook for the residential construction market – and, most recently, the commercial construction market – remains bleak.
• Many markets – such as south Florida, Phoenix, Las Vegas and Southern California – are completely oversaturated from a housing standpoint. Streets lined with empty homes have become the rule rather than the exception there. On the other hand, in some areas, overcapacity is an issue.
• Many small home builders have been wiped out, except for niche players in markets that fared better during the recession and firms that offer value-added services to customers.
• Many companies have downsized operations dramatically, and are operating at levels between 30 percent and 60 percent of prior peak volumes.
• Major home builders are interested in hiring non-union workers and using one-stop shops where they can purchase all supplies at once to reduce costs.
• Consumer buying patterns are increasingly complex, putting even more stress on sales, marketing and operations.
• New construction is stale, but remodeling has gone way up. Home Depot and Lowes are leveraging this trend in their marketing activities, and also targeting small contractors with low-price messaging.
• Demand for housing is low, except in cases where tax incentives are involved. The demand for lower-priced homes (between $150,000 and $250,000) is higher because tax credits are available. Builders, however, reap higher profits with higher-priced homes in the $300,000-plus range.
• Permitting is more expensive and complicated because of increased government regulations and green building standards.

6- to 12-month Outlook

• An uptick in the number of union battles is anticipated.
• Green building is a key growth area.
• Expect continued pressure on prices as consumers and builders demand low-cost, high-value products.
• Some believe there is more fallout to come in this market.