Fitch Ratings reports that there is no bottom in sight for U.S. homebuilders as the recession deepens.
“As weak as housing has been, it can soften further,” said Managing Director and lead Homebuilding analyst Robert Curran. “Credit markets are still impaired, home prices continue to fall and now the general economy and, especially, employment numbers have taken a turn for the worse.”
Job losses have totaled 1.5 million during the past three months and the unemployment rate is expected to continue to rise, reaching 8.3%, some 3.5 percentage points above its structural rate.
Fitch economists say 2008 was one of the worst years in decades for U.S. housing and the homebuilding industry, but 2009 looks to be more challenging.
“With the backdraft from the end of 2008 all but ensuring an especially weak start to the new year, lower mortgage rates, depressed home prices and new economic and housing stimulus programs will probably lead to a bottoming of certain housing metrics late in 2009, but not before there is more significant downward pressure among homebuilders,” the company noted in a statement.
EFECTS ON THE FORT SMITH REGION
Following are a few points to consider when comparing the regional building sector with what is happening nationally.
• Homebuilders and the building sector in the Fort Smith region were spared the extreme hardships seen in the national building sector. Mother Nature is to credit for helping the regional building sector remain relatively strong. The April hail storm and June wind storm that hit the Fort Smith region was followed by an economic stimulus “storm” that dropped at least $80 million in commercial and residential building activity in Fort Smith.
• Dave Hughes, executive director of the Greater Fort Smith Association of Home Builders, said Jan. 6 that he estimates 90% of the repair work in the region is complete. If that is true, the remaining work will not provide the economic boost the building sector enjoyed in 2008 — which opens the possibility that the regional building sector could be more influenced by what is happening in the national economy.
• New home construction in 2008 presented a mixed bag. New home permits in Fort Smith were valued at $30.14 million in 2008, up more than 25% over 2007 values. However, the value of new home construction in Van Buren was $20.91 million in 2008, down more than 35% compared to 2007.
• Hughes predicts a slight increase in new home construction in the region in 2009 barring further deep deterioration in the national economy. “My optimism goes back to the fact that the areas suffering the most now (were) overbuilt and were in a weakened position when the credit implosion occurred flooding their markets with repo’s,” Hughes said Jan. 6.
• It will likely be in the manufacturing sector in which the Fort Smith region feels the effect of the continued national housing sector downturn. Whirlpool, Rheem, Trane and Riverside Furniture are just a few of the high-profile manufacturers whose products (refrigerators, air-conditioning systems, furniture) are tied to the health of new home construction. The four manufacturers noted above laid off more than 1,500 workers — at a conservative minimum — within the past six months.
• Vendors to the above manufacturers are closing plants or enacting significant layoffs. Link here for those details.
• It’s not just manufacturers who will feel the heat — or lack thereof. The national trucking operations of Van Buren-based USA Truck and Fort Smith-based ABF Freight System will face continued decline in freight demand if the housing sector continues to decline. The two companies have laid off people at their corporate headquarters. The companies have not released details of how many jobs were cut or temporarily suspended.
• Then there is one more detail about the economic boost provided by needed repair work from the April and June storms. The majority of money used to fund the repairs was an influx of money into the Fort Smith region from out-of-state insurance companies. Therefore, not only did the repair activity stimulate the regional economy, the cost of repairs did not necessarily curtail other local spending because area citizens were being reimbursed (provided insurance checks, for example) for the repair work.
• “In fact, the additional dollars coming into our economy — and they were actually additional dollars coming in — bolstered local spending as those insurance proceeds were used to contract for and purchase goods & services for the storm damage repairs,” explained Rusty Myers, economic development director for the Western Arkansas Planning and Development District. “That caused a bump in local retail spending and thus a bump in local sales tax receipts. These bumps are anomalies and should be subtracted out when making future projections.”