Stimulus Specifics For Construction

According to an article published today by the Media General News Service, the President's $825 billion stimulus includes spending on three key areas that would help the construction industry: infrastructure, energy, and education.

From the Media General article:
"Infrastructure-- Creates an estimated 1.5 million jobs, about half the jobs the plan proposes. -- Rebuilds roads, bridges and public buildings as well as cleans up the environment.-- States have told Congress they have 5,100 projects – costing $64 billion – that could be under contract within 180 days. States must designate half the highway and transit money for projects within six months or the Department of Transportation can reclaim the funds.-- Sets aside $10 billion to build mass transit and rail -- Upgrades federal buildings and makes them energy efficient, saving taxpayers $2 billion a year.-- Modernizes water systems and strengthens environmental cleanup.

Energy-- Creates more than 500,000 energy-related jobs.-- Includes $500 million to train workers for green-collar jobs.-- Provides $11 billion to improve electricity systems’ efficiency and reliability through a “Smart Grid Investment Program.” -- Creates temporary loan guarantees for up to $80 billion for renewable energy power generation and electric transmission projects.-- Encourages states to update energy-efficient building codes and regulatory policies and provides new modernization repair programs for schools and colleges.-- Provides consumer rebates to buy energy-efficient appliances.-- Expands tax credits through 2010 for purchases such as new furnaces, energy-efficient windows, doors and insulation. -- Expands aid per household for more than 1 million modest-income families who improve energy efficiency in their homes through weatherization.

Education -- Saves or creates an estimated 250,000 jobs in education and health care. -- Provides $20 billion to modernize schools and colleges nationwide. -- Increases tax credits, grants, work-study programs and loans for students. -- Provides Head Start $2.1 billion in additional funding. -- Includes $2 billion in grants for childcare for low-income working families. -- Establishes a fund to prevent education cuts and layoffs in states. "

Other stimulus resources:

Stimulus Uncertainty: How Fast Will The Impact Be?, USA Today

House Set To Vote, Bloomberg

Obama and Congree Meet Video, AP

Caterpiller Projects Slow Sales and Slashes Jobs

Caterpiller reported today that it projects 2009 sales to be $40 billion, down from $51.32 billion in 2008, according to an article in the Wall Street Journal. The company also reported that it was cutting a total of 20,000 jobs in light of the downturn in the global construction economy. To view Caterpiller's conference call report, click here.

Crisis Creates Opportunity For Construction Firms

"When written in Chinese, the word "crisis" is composed of two characters. One represents danger and the other represents opportunity." -John F. Kennedy

The prognosis for the economy in the AEC Industry remains unclear. Uncertainty remains the biggest concern for the construction industry. However, when there's crisis and uncertainty, there's opportunity.

-Government stimulus package legislation is likely to be introduced and passed early in Obama’s administration. Infrastructure, institutional and community projects are likely to benefit the most. States are preparing “Ready To Go” Lists for projects.

-The credit market remains tight, which makes is difficult for companies to access capital for new construction, expansion and development projects.

-Prices for construction materials and commodities have plunges after a rapid rise in prices. As demand has dried-up, prices have fallen.

-Consumers spending is still tepid due to uncertainty, specifically a drop in there personal wealth, plunging housing values, and fear about job loss.

-Talent will become available from solid AEC firms.While there is considerable uncertainty, there are several approaches and strategies AEC firms can take to weather the economic situation and be positioned for opportunities when the economy improves.

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Time To Buy Construction Stocks?

Forbes.com's Intelligent Investing Panel recently feature construction and engineering stocks. The article focuses on construction services firms such as Jacobs Engineering, Fluor Corporation, the Shaw Group, URS and AECOM Technology. In the article, author David Serchuk acknowledges these stocks have been battered over the last year, but says these construction sector stocks are up over the last five years. While Serchuck like the long term prospects, he urges caution for the short-term.

Existing Home Sales Rise in December

Existing-home sales rose unexpectedly while inventory declined, led by a surge of sales in the West, according to the National Association of Realtors(R).

Existing-home sales -- including single-family, townhomes, condominiums and co-ops -- jumped 6.5 percent to a seasonally adjusted annual rate(1) of 4.74 million units in December from a downwardly revised pace of 4.45 million units in November, but are 3.5 percent below the 4.91 million-unit pace in December 2007.
For all of 2008 there were 4,912,000 existing-home sales, which was 13.1 percent below the 5,652,000 transactions recorded in 2007. This is the lowest volume since 1997 when there were 4,371,000 sales.

Lawrence Yun, NAR chief economist, said home prices continue to fall significantly. "It appears some buyers are taking advantage of much lower home prices," he said. "The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal balanced conditions. Buyers will continue to have an edge over sellers for the foreseeable future."

Total housing inventory at the end of December fell 11.7 percent to 3.68 million existing homes available for sale, which represents a 9.3-month supply(2) at the current sales pace, down from a 11.2-month supply in November.

Yun said the market is underperforming and hurting the broader economy. "We've added 25 million people to our population over the past decade and housing affordability conditions are the best we've seen since 1973, but household formation is much lower than expected," he said.

"Consequently, there is a pent-up demand which could be unleashed with the right stimulus, including a non-repayable home buyer tax credit. The Obama administration and Congress need to move fast to stimulate a spring sales upturn which will help to stabilize home prices and set the foundation for a sustainable economic recovery."

The national median existing-home price(3) for all housing types was $175,400 in December, which is 15.3 percent below December 2007 when the median was $207,000. There remains a significant downward distortion in the current median from a large number of distress sales at discounted prices, currently 45 percent of transactions; the median is where half of the homes sold for more and half sold for less. For all of 2008, the median price was $198,600, down 9.3 percent from $219,000 in 2007.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said it's an excellent time for first-time home buyers with good jobs. "The typical buyer plans to stay in their home for 10 years, which is the correct approach in today's market," he said. "With historically low mortgage interest rates, flexible sellers, a large inventory, and homes that are selling for less than replacement construction costs in much of the country, buyers who've been on the fence should take a closer look at today's market."
McMillan added that first-time buyers may want to consider an FHA loan, which offers downpayments of 3.5 percent on a safe 30-year fixed-rate mortgage.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.29 percent in December from 6.09 percent in November; the rate was 6.10 percent in December 2007. Last week, Freddie Mac reported the 30-year rate was 5.12 percent.

Single-family home sales rose 7.0 percent to a seasonally adjusted annual rate of 4.26 million in December from a level of 3.98 million in November, but are 1.4 percent below a 4.32 million-unit pace in December 2007. For all of 2008, single-family sales fell 11.9 percent to 4,349,000.
The median existing single-family home price was $174,700 in December, down 14.8 percent from a year ago. For all of 2008, the single-family median was $197,100, which is 9.5 percent below 2007.

Existing condominium and co-op sales increased 2.1 percent to a seasonally adjusted annual rate of 480,000 units in December from 470,000 in November, but are 18.4 percent below the 588,000-unit level a year ago. For all of 2008, condo sales dropped 21.0 percent to 563,000 units.

The median existing condo price(4) was $181,400 in December, down 18.3 percent from December 2007. For all of 2008, the median condo price was $210,000, which is 7.2 percent below 2007.

Regionally, existing-home sales in the Northeast slipped 1.4 percent to an annual pace of 720,000 in December, and are 14.3 percent below December 2007. The median price in the Northeast was $235,000, which is 7.8 percent lower than a year ago.

Existing-home sales in the Midwest increased 4.0 percent in December to a level of 1.04 million but are 10.3 percent below a year ago. The median price in the Midwest was $140,800, down 11.4 percent from December 2007.

In the South, existing-home sales rose 7.4 percent to an annual pace of 1.74 million in December, but are 11.2 percent lower than December 2007. The median price in the South was $158,600, which is down 8.0 percent from a year ago.

Existing-home sales in the West jumped 13.6 percent to an annual rate of 1.25 million in December and are 31.6 percent higher than a year ago. The median price in the West was $213,100, down 31.5 percent from December 2007.