From Spotlight to Shadow: Housing's Luster Fades: Once a Bright Star on the U.S. Economic Stage, the Housing Industry Is No Longer Headlining the Show. from a Boom as Recent as 2005, Housing Construction and the Industries That Support It Are Falling on Difficult Times and Appear Unlikely to Make a Quick Comeback
Davidson, Charles, Chriszt, Michael, EconSouth
As the clatter of hammers subsides, the effects of an ongoing housing slump are rippling through the Southeastern and national economies.
The housing industry's post-boom downturn has not dragged the nation or the Southeast into recession. Federal Reserve Chairman Ben Bernanke noted in early June that so far there have been no "major spillovers from housing onto other sectors of the economy."
Nevertheless, the slowdown is restraining economic growth nationwide, particularly in sectors tied to residential construction. Home builders, construction materials suppliers, hardware chains, appliance sellers, and specialty retailers of home products have all reported declining business because of the housing woes.
Real gross domestic product (GDP) growth slowed to a bit more than 2 percent over the past year, down from average annual growth of 3.75 percent the previous three years. The economy stalled further in the first quarter of 2007 to an estimated real GDP growth of 0.6 percent, according to the U.S. Bureau of Economic Analysis (BEA).
"The cooling of the housing market is an important source of this slowdown," Bernanke said in a May speech. BEA figures show that fixed residential investment, the portion of GDP that housing makes up, has slipped in every quarter since the fourth quarter of 2005. In each of the last three quarters through March 2007, the decline in fixed residential investment has lopped off roughly 1 percent from real GDP growth.
Housing's bright lights dim in Florida
In the Southeast, Florida is the most striking example of the housing slump's dampening effect. After several boom years, the Sunshine State's job growth has waned, and the construction industry generally has been a notable laggard. Florida's employment gains dipped from 4 percent in 2005 to 2.6 percent in 2006 to only 1.7 percent in the first quarter of this year. For overall construction in Florida, payroll peaked in June 2006 at 644,800 workers. Since then, Florida lost 18,600 construction jobs through May 2007, according to the U.S. Bureau of Labor Statistics.
An end to Florida's residential construction boom would affect not only the construction industry but also banking and finance, real estate sales, wholesale and retail trade (particularly lumber and furniture), and manufacturing companies that are related to construction, said David Denslow, a professor of economics at the University of Florida. Sagging house prices and slowing construction would reduce spending, relative to historical trends, "on everything from cars to restaurant meals to state and local government," he added.
Indeed, through March, Florida's taxable sales of autos and accessories, consumer durables, building investment goods, and business investment goods were down on a year-over-year basis. Building investment as a category fell most--more than 20 percent from March 2006 levels.
"I'm still hopeful the end of the [housing] boom will not harm Florida too seriously," Denslow said. "After all, the demographic trend is with us as the boomers retire. If there's no national recession, we should be OK, though not booming."
While there are glimmers of hope, recovery still eludes Florida's housing sector. According to the National Association of Realtors, the state's year-over-year existing home sales were down 25 percent in the first quarter of 2007, an improvement over the 33 percent drop in the last quarter of 2006. But reports from Florida home builders indicated that new home sales remained weak in the first quarter, and new home prices declined in March compared with a year earlier. Not surprisingly, permits for new residential construction were down more than 50 percent in the first quarter of 2007.
A shadow on Southeastern housing
The housing construction and home sales story is much the same, though less pronounced, throughout the Southeast, where home builders report weak new home sales. …