Has housing found its basement?

Building permit values for the first two-thirds of 2006 indicate an expanding construction economy in both non-residential sectors, while housing takes a breather.

Economists are starting to wonder now, though, whether the residential slump will be a short one that is already showing signs of hitting the trough.

According to figures compiled by McGraw-Hill Construction, Lexington, Mass., residential contract values in August were stable, following declines in the prior three months that combined to lower the dollar amount for this sector by more than 20 percent from its pace in early spring.

"This year, total construction has been dampened by the downturn for single family housing, but it's also been supported by greater activity for nonresidential building and public works," says Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.

Throughout the housing slump, both nonresidential building and the infrastructure categories "are on track this year to register their largest percentage growth since the late 1990s, as improved market fundamentals and more government financing have outweighed the constraint of higher materials prices," according to Murray.

In the non-residential sector, new construction starts for hotels rebounded 73 percent in August, following a brief pause in July, continuing a banner year for hotels. August featured groundbreakings for five hotel projects valued in excess of $100 million each, located in Colorado, Michigan, New Jersey, Pennsylvania and Texas. For the year-to-date, hotel building permit values are up a substantial 119 percent compared to last year.

Amusement-related projects jumped in August, helped by the start of a $100 million performing arts facility in Dallas. Healthcare facilities registered an 8 percent gain, assisted by groundbreaking for hospital projects in Colorado, Indiana, New York and Tennessee.

In the infrastructure category, a 4 percent gain was reported for August compared to August 2005. Highway construction registered a healthy 6 percent expansion, while bridges soared 50 percent, with some of the push coming from the start of a $147 million renovation project on the Tappan Zee Bridge in New York state.

In the residential market, August was essentially unchanged from July, according to McGraw-Hill. Single-family housing, though, retreated 2 percent, marking the seventh decline in a row for new houses. After those consecutive drops, the dollar amount for new single family construction fell 22 percent below the pace at the outset of 2006. For the first eight months of 2006, single-family housing for the U.S. is down 6 percent from its dollar amount for the same period of 2005.

By region, year-to-date single-family declines are most drastic in the Midwest (down 16 percent) and the West (down 13 percent), followed by the Northeast (down 9 percent) and the South Atlantic (down 3 percent). Running counter to the trend is the South Central region, which has posted a 3 percent gain during the first eight months of 2006.

U.S. CONSTRUCTION CONTRACT VALUES

                         % Change   Jan-Aug 2006   Jan-Aug 2005

Residential                 -5%       $245.8 *       $257.5 *
Non-Residential Const.     +13%       $134.6 *       $119.0 *
Infrastructure             +14%       $80.1 *         $70.5 *
Total                       +3%       $460.5 *       $447.0 *

* in billions

Source: McGraw-Hill Construction

Note: Table made from bar graph.