The next five years look to be among the most challenging years for the construction industry. While it is undeniable that construction is one of the fastest growing industries in America, it is also one of the least predictable. While there have been improvements in most areas of the industry, there are major challenges that are sure to come with the change of times.
The most obvious challenges are the growth of sub-contractors, the increasing number of contractors, the growing number of tradesmen, the increasing number of suppliers, the increasing demand for more efficient practices, the increasing number of construction companies, the increasing number of jobs, the rising costs of infrastructure, and the growing need for government regulation. In other words, we are in the midst of a massive, ongoing shakeout.
I’ll leave you with a few thoughts on how to move forward without being tied down in your head.
It’s important to remember that construction isn’t about a single project. The construction industry is a whole industry that works alongside each other.
Just like any other industry in the economy, construction can boom, or bust, or take a longer time between boom/bust cycles. When it does, it can create incredible demand and then the construction companies that can supply the demand will boom. This is what we’re seeing now.
One thing that I find really interesting is that the boom cycle is not even the same as the bust cycle. Before the 2008 financial crisis, the construction industry did not boom. In fact the industry was doing pretty well and there was little demand for high volume housing. Now, with the 2008 financial crisis, the demand for housing is skyrocketing. The result is that the boom cycle hasn’t been the same as the bust cycle.
To back up that last point, a new study of the last 40 years of US building activity concludes that the boom/bust cycle is at least a third different. The boom and bust cycle is really the result of a few factors. The boom is the result of strong inflationary factors, such as the huge boom in home sales of the 1990s. The bust is a result of a weak inflationary factor, such as the weak housing bubble that started in 2005.
The boom cycle is a result of very strong inflationary factors such as the housing bubble that started in 2005. The bust cycle is a result of very weak inflationary factors such as the weak housing bubble that started in 2005.
The big point of the chart above is that the price of a home has a longer average time to sell than an automobile. The housing bubble began in 2004 and peaked in 2006. The bubble is now down to the $240 housing market, but that still means that many houses are still on the market for a long time now. On the other hand, the current home price bubble is probably in a longer period of decline now that the housing market is down to almost nothing.
It makes for a good test though. How many years ago did the home price bubble started? How much time was it since? How long was the bubble before the current one started? You can’t really have a good idea of how much time it will take for the bubble to completely fade without knowing the answer to the last question.