Construction EnvironmentConstruction Environment

BCN 4772 Summer 2006BCN 4772 Summer 2006

Residential 2006Residential 2006 National National

Median price $210,500Median price $210,500 13.1 % Increase from January 200513.1 % Increase from January 2005 Median home price in California in January Median home price in California in January

$551,300$551,300 The median home price in New York in January The median home price in New York in January

$319,000 $319,000 Maryland’s median home price in January Maryland’s median home price in January

$290,776 $290,776 North Carolina the median home price in North Carolina the median home price in

January $206,788January $206,788

Existing Homes FloridaExisting Homes Florida

The median value for a home in Florida in The median value for a home in Florida in 2001 was $118,2002001 was $118,200

$244,200 in February 2006 $244,200 in February 2006 106% increase in the last five years106% increase in the last five yearsMiami median home price increased from Miami median home price increased from

$309,800 to $368,700 in 2006 $309,800 to $368,700 in 2006 Ft. Lauderdale median home price from Ft. Lauderdale median home price from

$319,400 in 2005 to $360,800 in 2006 $319,400 in 2005 to $360,800 in 2006

Duval CountyDuval County

Affordability index = cost of the home / annual Affordability index = cost of the home / annual family income (J.C.C.I.)family income (J.C.C.I.)

Median household income in Jacksonville is Median household income in Jacksonville is $60,287$60,287

Median home price in Jacksonville is 190,700Median home price in Jacksonville is 190,700 Median house price / Median household income Median house price / Median household income

= 3.16= 3.16 Target is 2.5 for affordabilityTarget is 2.5 for affordability

Duval CountyDuval County

Increase of 6% in real-estate transactions Increase of 6% in real-estate transactions in Jacksonville over the last 15 yearsin Jacksonville over the last 15 years

Increased 8% from 2004 to 2005 Increased 8% from 2004 to 2005 Decrease of 1% in existing home sales in Decrease of 1% in existing home sales in

February of 2006 Vs February 2005February of 2006 Vs February 2005Starting to show a slowing trendStarting to show a slowing trend

Trends Facing Jacksonville MarketTrends Facing Jacksonville Market

Mortgage Rates have increased from Mortgage Rates have increased from 5.67% to 6.5% from 2005 to 20065.67% to 6.5% from 2005 to 2006

Large amount of investment houses that Large amount of investment houses that have been bought over the last few yearshave been bought over the last few years

Large supply of condos in the Jacksonville Large supply of condos in the Jacksonville market market

Sales of existing homes have decreased Sales of existing homes have decreased all over Floridaall over Florida

New Home ConstructionNew Home Construction

Construction and development lending grew 66 Construction and development lending grew 66 percent during 2005. percent during 2005.

Most of the lending is for residential homes and Most of the lending is for residential homes and condos condos

The housing market accounted for 56% of all The housing market accounted for 56% of all construction last year.construction last year.

Sales of new single-family homes rose 13.8 Sales of new single-family homes rose 13.8 percent last month.percent last month.

There was a 10.9 percent plunge in sales in There was a 10.9 percent plunge in sales in February February

What does it mean?What does it mean? Many home purchasers have been stretching to Many home purchasers have been stretching to

buy their homes. buy their homes. Adjustable-rate mortgages (ARMs) to reduce Adjustable-rate mortgages (ARMs) to reduce

their payments.. their payments.. ARM’s see mortgage payments increase ARM’s see mortgage payments increase

substantially as interest rates increase. substantially as interest rates increase. Foreclosure rates will go up, and home values Foreclosure rates will go up, and home values

could be hurt as a result. could be hurt as a result. Real-estate bubble?Real-estate bubble? Correction?Correction? Real-estate Boom?Real-estate Boom?

Commercial ConstructionCommercial Construction

8.6% increase in commercial market to 67 8.6% increase in commercial market to 67 billionbillion

6.2% increase in office building market to 6.2% increase in office building market to 35 billion35 billion

6.7% increase in health care work6.7% increase in health care work22% gain in industrial construction 22% gain in industrial construction

(fastest growing segment in the industry)(fastest growing segment in the industry)

10% decrease in power construction10% decrease in power construction

Commercial ConstructionCommercial Construction

Commercial construction spending is at Commercial construction spending is at record levels record levels

The biggest categories were projects for The biggest categories were projects for use as office space use as office space

Hotel market has seen a rebound in new Hotel market has seen a rebound in new construction as well construction as well

Steep rises in both demand and Steep rises in both demand and construction costs are fueling the growth. construction costs are fueling the growth.

Construction CostsConstruction Costs

Prices for iron and steel products rose Prices for iron and steel products rose 35% in 200435% in 2004

Steel rebar and copper wire skyrocketed Steel rebar and copper wire skyrocketed by as much as 60% in some markets by as much as 60% in some markets

PVC pipe and other petroleum-derived PVC pipe and other petroleum-derived materials went up between 15% and 20%materials went up between 15% and 20%

Steel and cement prices have been Steel and cement prices have been especially high as well. especially high as well.

Construction CostsConstruction Costs

If Costs keep going up, why is there a If Costs keep going up, why is there a large growth trend in the construction large growth trend in the construction industry?industry?Rate of growth of real-estateRate of growth of real-estateDemandDemandSpeculationSpeculationState of the economyState of the economyHurricanesHurricanes

Issues to look atIssues to look at

Apartment marketApartment marketRentalsRentals Investment PropertyInvestment PropertyRising Mortgage ratesRising Mortgage ratesCredit limits Credit limits Baby BoomersBaby BoomersGlobal demand for construction materials Global demand for construction materials

Price IndexPrice Index

What is a price index?What is a price index?The cost of a basket of goods expressed The cost of a basket of goods expressed

as a percentage of the cost of the same as a percentage of the cost of the same basket of goods during a base year.basket of goods during a base year.

CPI, PPI, GDP DeflatorCPI, PPI, GDP DeflatorBCI, CCIBCI, CCI

Price IndexPrice IndexCost of basket today

Cost of basket in base yearX 100

If a light bulb costs .75 now and last year it cost .50 What is PI?

.75

.50X 100 =

1.5 X 100 = 150

What does the PI number mean?What does the PI number mean?

If the index for a light bulb is 150 If the index for a light bulb is 150 So in one year the price of a light bulb has So in one year the price of a light bulb has

gone up by I and 1/2 times or 50% gone up by I and 1/2 times or 50% increaseincrease

So 1.5 X .50 = .75So 1.5 X .50 = .75Base year is always 100Base year is always 100100/100 = 1100/100 = 1

BCIBCI

BCIBCI

2% 13%

63%

22%

Cement

Lumber

Skilled Labor

Steel

CCICCI

CCICCI

1% 8%

79%

12%

Cement

Lumber

Common Labor

Steel

s

Other Building Cost IndexesOther Building Cost Indexes

General-purpose Cost IndexesGeneral-purpose Cost IndexesENR 20-City Construction CostENR 20-City Construction CostENR 20-City Building CostENR 20-City Building CostBuRec: General BuildingsBuRec: General BuildingsFactory Mutual: IndustrialFactory Mutual: IndustrialLee Saylor Inc.: Material/LaborLee Saylor Inc.: Material/LaborMeans: Construction CostsMeans: Construction CostsSmith GroupSmith Group

Other Building Cost IndexesOther Building Cost Indexes

Selling Price Indexes-BuildingSelling Price Indexes-BuildingValuation IndexesValuation IndexesCommerce and BLS Cost IndexesCommerce and BLS Cost Indexes

ENRENR

Other Trends Other Trends

Oil pricesOil pricesSteel PricesSteel PricesCement PricesCement PricesWagesWagesBaby–BoomersBaby–Boomers

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