ENR Robert Murray

An overall decline in construction starts in the United States has proven more dire than once predicted. McGraw-Hill Construction, corporate affiliate of Engineering News-Record and enr.com, estimates that the industry will experience an 8% decline in construction starts in 2007 and another 2% drop is forecast for 2008.

The forecast was released today during McGraw-Hill Construction's 2008 Construction Outlook in Washington, D.C.

After reaching a record $668.9 billion in total construction starts in 2006, values are expected to hit $626.7 billion for 2007 and $614.1 billion in 2008. Last year, McGraw-Hill Construction predicted that starts in 2007 would drop 1%, as the single family home market weakened and other sectors, such as institutional work, remained strong.

Related Links: McGraw-Hill Construction Outlook 2008 (32-ppg pdf for $495)

Robert A. Murray, vice president of economic affairs at McGraw-Hill Construction, said turmoil in the sub-prime mortgage market that emerged in August created a major concern for the construction industry and the overall economy. Murray noted that tightening lending conditions that will impact development in both residential and commercial real estate.

"As a result, we're now predicting downturns in the previously resilient multifamily and commercial segments, as well as continued weakness in single-family home construction," he said.

Single-family home construction remains the main drag on overall construction starts with a 25% plunge estimated in 2007. Declines will continue, but could ease considerably in 2008 with dollar volume expected to decline an additional 3%, according to the report.

Multifamily housing is also expected to slide 8% in 2008 to $56.4 billion after a nearly 12% drop in 2007.

Faced with tightening lending standards, commercial buildings will take a hit as well, dropping 6% in 2008.

After experiencing a 40% surge of growth in 2007, thanks in part to considerable development of ethanol plants, the manufacturing sector will retreat by 11% in dollar volume to $16.5 billion.

Some trends are more positive for 2007, particular in the public sectors as many state and local governments remain fiscally strong, Murray said. Public works will realize a 3% gain to $120.95 billion in 2008. Highways and bridges are predicted to be a major contributor to growth, as renewed interest has been expressed in Congress for infrastructure improvements following the I-35W bridge collapse in Minneapolis in August. Public-private partnerships also continue to offer additional revenue sources. Murray said the sector would see a 5% increase in construction starts to $56.9 billion.

Values of institutional building will also rise 4% to $118.7 billion in 2008, while square footage of those projects will remain essentially flat, experiencing a modest 1% increase. School construction will be a strong contributor to growth in the sector, rising 7% to $56.3 billion next year, while healthcare starts will flatten with a 1% drop predicted.