Housing Outlook Remains Bleak

Implications: The Portland Cement Association (PCA) has recently published a new article with a pessimistic view of the housing situation. It is becoming more likely that 2007 and 2008 construction activity is going to suffer despite relative strength in non residential and public works construction. Construction materials demand is likely to register more substantial declines than previously forecast, and price increases will likely meet greater resistance as demand falls, further suggesting that the construction materials sector has entered a cyclical downturn.

Analysis: Although it is probably premature for construction materials companies to begin panicking, it is certainly time for concern. The hope had been that the housing downturn would be relatively brief and contained to a limited number of markets, and that strength in the commercial and public works sectors would offset much of the negative impact of the housing slide on construction activity. It now appears that the housing slump is going to be deeper, longer and possibly more widespread than anticipated. Although non-residential construction is remaining buoyant, it is probably not strong enough to offset the housing decline. The PCA has indicated that cement consumption in the single-family housing sector could decline 30% in 2007. This will most certainly lead to 5% or greater decline in total cement consumption for the year. The same trends can be expected for related construction materials such as concrete and aggregates. And, since these are national figures, and we know that the housing story has significant regional disparity around the country, some markets will experience much more substantial declines in demand.

In short, 2007 and 2008 are shaping up to be more challenging years for the construction materials sector.