New home construction is at a virtual standstill. Even with massive infrastructure spend promised by the Obama stimulus package that is wending its way through Congress, the construction industry in general is slammed like never before. The January 19th New York Times: “‘The reality is, we’re seeing conditions in home construction and home finance that are the worst since the Depression,’ said Steve Fritts, associate director of risk management policy at the Federal Deposit Insurance Corporation, the government agency that insures bank deposits.”
It gotten so bad that small builders who are current on their bank loans (have not been late or delinquent on a single payment) are still getting their loans called because of bank fears that the underlying collateral (the project under construction) just cannot support the loan. The same Times article: “Dave Brown, one of [Tempe, Arizona’s] best-known home builders, had kept his head above water through the housing downturn, not missing a single interest payment on his loans.
“So he was confounded a few months back when one of his banks, spooked by the decline in his company’s revenue, suddenly demanded millions of dollars in additional collateral to continue carrying loans on his projects.
“He was unable to come up with the money, and in October, JPMorgan Chase foreclosed on five of his developments. Shortly thereafter, Brown Family Communities, 33 years in the business, decided to shut its doors.” The story is being repeated all across the nation, but the job loss that once centered on the financial, automotive and construction sectors is rapidly moving across the entire economy. My own state, California, just announced an unemployment rate of 9.3% (higher in my local community, Los Angeles, at 9.9% without even counting folks who can only find part-time employment or have given up looking).
The sheer numbers of workers being let go is staggering. On January 26th, Reuters posted this horrific note: “[Earth-moving equipment manufacturer, Caterpillar, Inc.,] said that it would cut about 17,000 workers and buy out 2,500 others, to reduce costs in the face of what it predicted would be the weakest year for business since the end of World War Two.” Bad is getting worse.
Those who favor tax credits as a solution should truly focus on what such credits would mean to a corporate world that has no profits against which to apply most of those credits, does not really want to hire additional workers to use up more raw materials for products they cannot sell, and exactly how that last round of tax credits to individuals, back in the spring of 2008, really didn’t do much at all to spur people to spend more money – they pretty much did what those hoarding banks are doing with any money they can get their hands on; they paid down their debt or just salted the cash away.
If we can hit bottom by the third quarter, we will have done “well,” but doing well means that between now and that “bottom,” the numbers across the board are just going to stay bad. Good news appears to be nothing more than “less bad” than we expected. How are you going to get from “here” to “there”? It’s a question being asked at every level in this nation and most of the rest of the world.
I’m Peter Dekom, and I’m concerned too.
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