McGraw-Hill Construction economist Cliff Brewis says, “It is difficult to foresee a long-term recovery (of the economy) without single-family (homes) doing very well. It is a bellwether of how the marketplace will do because if you are building homes, you are going to build schools; if you are building homes, you are going to build retail; and if you are building homes, you will build roads. It is an extremely important player in terms of overall economic performance for construction activity.”
So in the view of Mr. Brewis the entire U.S. economy depends upon more real estate being developed. Forget that the Fed’s low interest rate policy especially after 9/11 led to millions of redundant homes, shopping centers, office buildings, warehouse projects, schools and other government facilities being built. Not to mention local and state government budgets that expanded to spend the gusher of taxes and fees generated by real estate activity. For instance, a shocking number of building inspectors are still on the government payroll of at least one municipality I know of despite very few building permits being pulled and projects started. As Austrian Business Cycle Theory would dictate, a clearing of the malinvestments in higher order goods like real estate development is required to reallocate previously misdirected resources. That process has much further to go.
On the other hand, sellers of consumer goods are adjusting their business plans (putting more pressure on real estate development). Gap Inc and AnnTaylor Stores are shrinking their store footprints.
