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Home arrow Market Research Findings arrow Housing/Property arrow Introduction To The Real Estate And Construction Industry
Introduction To The Real Estate And Construction Industry PDF Print E-mail
Written by Plunkett Research   
07 Jun 2012

The real estate and construction sectors, including the many professions and fields associated with them, make up one of the larger components of the global economy.

As of 2011, the U.S. Bureau of Labor estimated that 5.5 million Americans were employed in the construction industry (down dramatically from a peak of 7.6 million in 2007).

The agency also estimated that 1.4 million Americans were employed in the real estate industry as of 2011 (down slightly from 1.5 million in 2007).

There was $13.4 trillion in outstanding mortgage debt in America at year-end 2011 (including $10.2 trillion in home mortgages). This number has been in a long term decline. In 2010 it was $13.8 trillion, and it was $14.3 trillion in 2009. Many home mortgages remained in arrears as 2012 began, and mortgage owners will continue to suffer write-downs to some degree. Foreclosures have been totaling about 1 million yearly since 2009. However, foreclosure activity slowed in 2011.

After a dismal crash during 2007-09, real estate had improved to some extent in many markets by 2012, although home prices in many cities remained at depressed levels. Meanwhile, real estate had enjoyed a significant boom in China, Canada and a few other select spots during much of 2010 and 2011.

During most of the 2001–07 period, easy availability of development loans and mortgages, low interest rates, eager investors and unbridled optimism caused massive new developments of homes, shopping centers and office buildings to sprout on a global basis. The effect was widespread. For example, large portions of the economies of Ireland and Spain were driven by real estate speculation and investment. China, Australia and India saw significant real estate booms, as did Dubai. By 2007, however, the global boom in real estate was unwinding, and in many cases markets were crashing. Many commercial projects failed to attract a sufficient number of new tenants. “Subprime” mortgages issued to home buyers with poor credit and little income plummeted in value, particularly in the U.S. and Europe, and what began as a real estate crash unleashed a global financial nightmare and a daunting recession.

Many of the resulting problems have been resolved, in some cases through massive bankruptcies of mortgage firms, developers, banks and construction companies. However, in the United States and parts of Europe, the market for houses remains depressed. Part of the problem is an enormous number of houses that are either going through the foreclosure process, or are already bank-owned and on the market at modest prices.

In the U.S., home sales volume has picked up, but it remains far below pre-recession levels. For 2011, the National Association of Realtors (NAR) reported 4.26 million existing homes sold. For 2010, the number was 5.14 million. While the median sales price for these homes was $166,100 in 2011 compared to $156,100 in 2010.

About $789.7 billion in new American construction was put in place during 2011, according to the U.S. Bureau of the Census. This is down dramatically from the 2006 peak of $1.16 trillion. As of April 2012, the Mortgage Bankers Association (MBA) estimated America’s new single-family housing starts to total only 433,000 for 2011, growing to 505,000 in 2012, and 580,000 for 2013.

Clearly, homebuilders have been suffering. For example, Pulte Homes, Inc., one of the world’s largest builders of new homes, saw its revenues soar from $8.8 billion in 2003 to $14.5 billion at its peak in 2005. In 2007-08 the bottom fell out. Now renamed PulteGroup after a merger with Centex, business remains dull. PulteGroup’s 2009 revenues were only $3.9 billion and large losses continued. In 2010, revenues improved ($4.4 billion), but the company continued to post losses ($1.1 billion). 2011 revenues dropped to $4.1 billion while losses fell to $210 million.

On the opposite end of the spectrum, luxury home builder Toll Brothers saw sales rocket from $2.7 billion in 2003 to $6.1 billion at its peak in 2006. Buyers of these expensive homes (averaging about $688,000 during the boom) found it incredibly easy to get a mortgage, often a mortgage that they couldn’t afford in the long run. For 2009, Toll Brothers’ revenues were only $1.7 billion and the firm recorded a $755 million loss. In 2010, revenues fell further to $1.5 billion, but losses were cut ($3.3 million). The firm managed to make a profit in 2011 of $39.8 million on $1.48 billion in revenues.

Many owners of retail centers and malls were hit hard by the recent recession. General Growth Properties, Inc., America’s second largest mall operator, filed bankruptcy in early 2009. The company had been unable to refinance its massive mortgages as they came due. At $27.3 billion, this was the largest bankruptcy in U.S. real estate history.

Retail centers in the U.S. were seriously overbuilt during the boom, through 2007. The end result of the glut of mall and shopping center space was a shakeout. Reis, Inc. reported that the vacancy rate at U.S. neighborhood and community shopping centers in the U.S. rose to 10.9% in mid-2010, up from 10.0% a year earlier. The highest vacancy rate on record was 11.1% in 1990. As for regional and super-regional malls, vacancies hovered close to a 10-year high, reaching 9% in mid-2010 compared to 8.4% a year earlier. The third quarter of 2010 showed a slight improvement, with vacancy rates dropping to 8.8%. Large numbers of retail store chains took bankruptcy during the recession, and many others have either curtailed expansion plans, or are opening much smaller stores than in the past.

U.S. apartment house occupancy rates increased during 2010-11. Apartment house operators are enjoying brisk business in general.

Office building occupancy rates in the U.S. have been low in many markets, and rents are depressed. This will improve significantly when economic growth resumes in earnest.

Commercial construction spending was at record levels for several years. Private sector (non-governmental), non-residential construction put in place in the U.S. reached $266.6 billion in 2010, according to figures compiled by the U.S. Census Bureau. Private, residential construction put in place was $241.7 billion. Commercial public sector (for government), construction totaled $306.3 billion during 2010.

Over the long term on a global basis, there will be continuing demand from the health care sector for new or remodeled properties as the percentage of the population over age 65 continues to grow, increasing demand for medical care and assisted living centers. Another growing trend in construction in major economies is to incorporate a higher number of energy conservation technologies in new buildings. This is true in both residential and commercial construction. Several “green” building certification plans are now in place, so that architects and builders may seek to attain certain energy conservation and eco-friendly standards.

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6 June 2012

Last Updated ( 11 Jun 2012 )
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