Thursday, January 31, 2008

Is Commercial Construction Signalling 7 Lean Years?

Losses May Be Shared Across the Industry Like the Flu Bug!

A very valuable friend who is a contractor and banker once commented to me that if a developer or builder can borrow the money, they will build the project regardless of the market conditions.

I think he was correct because we are seeing the effects of a lot of that from the last few years.

I have also heard from a lot of contractors who are spread from around the country tell me that their business has slowed or stalled in the last few months

The problem is this.

Right now we have a bad business outlook. Housing sales are losing ground, inventory is at an all time 4.7 year high and too many contractors think this will turn around in a year or so. Some have even used their line of credit or personal funds to try and keep themselves afloat, hoping things will turn around soon.

With just the inventory figure alone and the rising foreclosure rate, anyone thinking that this market will get better in less than 4 years is in for a financial shock.

Grant you, some are doing well in some parts of the country but the national average is not so good. And, the backlog of work may be drying up and no one is paying attention to the facts.

But then again, what about the commercial arena?

The commercial market is always the Johnny-come-lately. Developers build on the anticipation of the need. What we are seeing rolling out the door are projects that were in-the-works. Money has been secured or those with the deep pockets anticipating a rushing need for the completed work.

In a short time, we may see more “For Lease or Rent” signs on commercial properties then there are leasers, renters or buyers, if we are not already seeing that in some parts of the country.

The small hinge that swings this big door is credit. And credit is in a major incubation stage of an influenza epidemic.

Banks have already stated that they expect the big foreclosure rate to hit sometime next year. The sub-primes have already fallen and don’t expect too much for from Uncle Sam bailing the mortgage people out without you footing the bill (the question is … can you afford it?).

Actually, the prudent thing for the lawmakers would have been not to allow the lenders to offer such dangerous loan vehicles to so many who couldn’t afford it to begin with. Again, why do we elect these politicians to office?

Anyways …

Even if Uncle Sam does try to help by reducing the prime (to what, I have no clue?) I doubt it will make a big difference. The dollar just isn’t worth the paper it is printed on. Maybe it is time to go back to silver and gold currency with hopes the Feds will leave money alone.

Anyways rate cuts are temporary help, long-term I doubt it. The problem is bigger than that.

Right now we are in a major colon cleansing of the weak from the strong. I think conservative forward-thinking, tightening the old money belt and the mastering of better business skills is the most prudent course of action for any business owner to take. This is exactly what makes the difference in the existing survival situation we have now. Knowledge is power, ego isn’t.

Otherwise … maybe seven lean years await us.

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