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FMI: 2009 was the bottom for residential, non-residential construction still in freefall

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FMI: 2009 was the bottom for residential, non-residential construction still in freefall

By Jeffrey Yoders | August 11, 2010

While 2009 was likely the bottom in terms of percent decline, 2010 will be the bottom in terms of dollar volume. Residential construction is expected to begin recovering in 2010. Nonbuilding construction will continue to be a positive contributor, increasing another 5% in 2010, driven mostly by conservation and development construction.

The economy may show some signs of improving, but it is just the beginning of the downfall for nonresidential construction. Nonresidential construction typically lags the general economy by about 18 months. Intense competition has been bringing down prices. This is good for owners, but not so good for contractors. Nonbuilding construction will remain positive for the forecast period with power and conservation and development leading the sector.

The residential sector is expected to begin to recover in 2010. Single family put in place construction will recover at a slower rate than single family housing starts. The number of square feet per start is declining, meaning that new homes are getting smaller. They are also getting less expensive. The average and median new home sale price is decreasing.

Report highlights include:
• Commercial construction relies heavily on consumer spending and new housing construction. Consumer spending will not return to high levels until the employment situation improves. Commercial construction is not expected to pick up until 2012.
• Health care construction will likely see a small increase in 2010 and 2011, remaining at a historically high level.
• Power construction has seen four years of phenomenal growth and is expected to remain positive for the next five years.
• Conservation and development construction is one of the few surprise winners from the stimulus bill.

Heather Jones, a construction economist for FMI's Research Services Group, is responsible for design, management and performance of primary and secondary market research projects and related research activities, including economic analysis and modeling, construction market forecasting and database management. Her particular expertise is in the areas of market sizing and modeling, competitive analysis, sales and market performance evaluations, buying practices and trend analysis.

For more information about FMI's Construction Outlook: Fourth Quarter 2009, or to schedule an interview with Heather Jones, contact Kathryn Robinson of FMI Corporation at 919-785-9211 or krobinson@fminet.com.

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