Commercial Market Offsets Residential Drop

December 25, 2006
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The HVAC market mirrored 2006’s construction market. As the residential construction market declined, the commercial market continued to increase, carrying the industry to a new market shift. Residential HVAC experienced an expected residential cooling late in the year, but commercial HVAC experienced an increase in sales and installations.

In kicking off the National Association of Home Builders (NAHB) 2006 Fall Construction Forecast Conference, David Seiders, chief economist for NAHB, said that a caption for the conference could be, “Will housing pull the U.S. economy into recession?” That’s the “big question of the day.”

According to The NAHB/Wells Fargo Housing Market Index, the market topped out the middle of last year at around 70, Seiders said. By September this year, the volatile market was down to 30.

Single-family housing permit issuances “have been in essentially a freefall,” as the residential market contracted significantly, noted Seiders. “The housing market is really in retreat and it is putting a heavy hit on the economy.”
Single-family housing starts peaked out in the first quarter this year, but are expected to decline through the second quarter of next year. One cause of this steady drop was the increased cost and overvaluing of homes. These trends spurred many consumers towards renovation and away from the purchase of a new home.
The housing decline was due to three factors, said Mark Zandi, chief economist of Moody’s One was housing affordability, another was that investors were exiting the market, and a third factor for 2006 was overbuilding.
“There are too many homes out there,” noted Zandi.
“Assuming the market was balanced in 2003, we needed to work off about 400,000 homes. Because of this, we will have below trend housing construction for the next two years.”

Commercial construction helped take up part of the slack that the residential market left.

According to a construction spending report from the U.S. Census Bureau, nonresidential construction rose 1.1 percent this past September, the 15th monthly rise in a row and the 13th record.
Ken Simonson, chief economist for the Associated General Contractors of America (AGC) said, “Nonresidential construction spending climbed to its 13th consecutive record this fall, showing that the homebuilding slide hasn’t carried other segments downhill with it.”

Publication date: 12/25/2006


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