Expected Changes in 3-year Outlook

Population growth and infrastructure aging should result in an increased need for housing in the residential construction area. The Bureau of Labor Statistics points out that competition for jobs will likely be fierce for much of this period, giving preference to those with highest skill levels, as a continuing labor glut and financial tightening holds down prices. However, it suggests that employment -- as a proxy for growth -- should increase by 19% by the mid-2010s. There are a number of factors which will impact this potential for growth.

The existence of many foreclosed homes and the continuing sorting of real estate prices, as that related industry comes to stability, will likely impact the prospect for growth in a negative way, as will the renter's market and the general state of the economy. However, government policy, with tax breaks offered for first-time buyers, should aid any prospects for growth. The advent of green technologies may benefit prospects for growth, as higher-income buyers may be more prone to build in order to achieve concerns related to lifestyle as much as physical need. Finally, the government stimulus programs, which are designed in many cases to aid development of construction projects generally, should have positive benefits to the residential construction industry, as the industry begins to shake off its economic woes and settle into a pattern of more normalized economic activity.

Case Study

One way to measure the prospects for growth in the residential construction market is to look at suppliers. Since many operators in the industry are small actors, and their prospects may be different from large contractor firms, it makes sense to view the companies that supply all contractors to see how...

The Home Depot is among the most important of all such suppliers. When viewing the Home Depot's stock prices, it can be seen that the company's stock prices were at $60 per share and above during the period of company expansion prior to 2000. Following a construction recession in the early 2000s, the stock prices fell back closer to the $40 mark, where they stayed for most of the 2000s. In the recent recession, they fell to lows near $18 per share in late 2008, and have slowly climbed back to a current level of just under $30 per share. Since the stock market generally has also begun to climb back to a normalized, status quo level, if is difficult to say that all of this growth is due to expected continued growth in the industry. However, this move is consistent with the points made above -- that the industry has need to grow significantly just to get back to where it was before the recession. Once this, occurs, the residential construction market ought to find stability and begin to promote slow steady growth that is determined less by macro-economic turmoil and more by demographic changes conducive to growth generally.