Homebuilding Industry Hit by Housing Slump
Oct. 27, 2006 — -- The ripple effect from the downturn in housing has already made waves in the real estate and mortgage industries.
"The folks are losing their jobs and having a very difficult time getting another one, certainly another one in the industry itself," said Mark Zandi, chief economist at Economy.com.
After several years of sky-high prices, the housing and construction industries have experienced a slowdown in recent months. Numbers released this week by the government showed that builders slashed home prices by the biggest annual margin in nearly 36 years in September.
Construction spending accounts for almost 10 percent of the nation's economy. As a result of the downturn, major home builders Pulte Homes and Centex have each cut 10 percent of their work force. That leaves thousands of workers without jobs.
Wall Street is also feeling the pinch. Mohawk Carpets stock is off 13 percent this year. And home improvement giants Lowe's and Home Depot are both down more than 8 percent.
"They are now reporting much much weaker sales and activity, so what the stock investors are anticipating is already beginning to happen," said Zandi.
And it doesn't end there.
"A new home buyer will probably spend about $6,000 more in the first year for furniture and appliances," said Michael Carliner of the National Association of Homebuilders.
Fewer home buyers mean fewer refrigerators will be sold -- and also fewer rugs, curtains and lawn mowers.
All of it has a predictable impact on the nation's economy.
"Housing added a lot to economic growth in the last two to three years, and certainly led to economic growth above trend. I think that era is over," said John Silvia, chief economist at Wachovia.
But there is at least one bright spot. Commercial building is booming, providing some jobs to laid off home builders.
Economists predict the housing slump will last for at least another six to nine months.
That's discouraging news for realtors like Drayton Saunders.
"Definitely, there's been a lot of hand-holding and there's been a lot of nerves, nervousness in this market," Saunders said.
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