Is construction slowing down? Perhaps, but not much

New Mexico Business Journal, Nov, 1996 by Susan Craig

Benchmarks used by the New Mexico Building Branch of Associated General Contractors are positive, according to executive director Vicki Mora. "Figures are very close to those of last year," she says, "which showed 45,800 workers on onsite construction, 20,000 of them commercial. Total earnings for full-time and part-time workers in all construction were nearly $495 million. Commercial and public building construction in New Mexico totaled $700 million." In the Albuquerque area, total building data will be affected by the winding down of the Intel project although, since AGC members have not been the primary general contractors there, the above figures will not materially change.

Another indicator cited by the AGC is workforce training. "Though we are seeing no increase in training, we see no decrease," Mora says. "The market is steady, and that's what we like, no cyclical boom and bust. We're seeing a good ratio between private and public work, a very focused market, a healthy environment. We're looking into 1997 and seeing many potential projects."

Mark Henderson of Henderson Construction sees that people are still very positive about building, with several projects beginning in the Renaissance development for private sector customers who think this is a good time to build. Customers such as Sandia and Los Alamos are still holding on despite media talk about slowdowns.

"Common sense tells me that we're on the top going down, but looking at all the activity I'd say construction is still steadily on the top," he says. "We're working nights and weekends ourselves, trying to get proposals out. Labor is more available than it has been, which might be an indication that things are slowing down, and if you read the paper you'd think we're flattening out. But it doesn't seem to be the case in reality."

Residential construction seems to be enjoying the same great good health as commercial construction, but some spirited discussion is beginning to occur.

"The market last year was much stronger than we anticipated, with a record number of 4,741 housing starts in the municipal area," says Jim Folkman, executive vice president of the Home Builders Association of Central New Mexico. "In the first half of 1996 we saw only a two percent reduction which is still a very excellent market. Two percent could be only a bump. We expect this sound market to continue throughout this year and into 1997."

It's a matter of perspective, he says. Last year's projections for a three to five percent downturn in housing starts were transformed into a banner year. This year's first-half reduction is expected to right itself. "we may see a slight flattening of the market," says Folkman, "but, tied to the perspective, growth should remain steady." He does indicate a shift in the market from the northeast quadrant to the northwest and northwest mesa areas. Other strong emerging housing markets are the southwest mesa, east mountain area and Los Lunas.

A contrasting viewpoint is offered by Duncan Milloy of Mortgage One. "Building is tapering off," he states. "We're always growing here, but now not at the same pace. We're not making starts as fast as before."

He says that looking at trends dating back to 1960, we can see that today's activity matches some of these trends. "Though the current cycle has been long, and we've been surprised at that," says Milloy, "we can look at the beginning of the downside of the bell curve. I notice that when we look at the last three cycles we see that when housing prices rise too high, the extension of the building cycle is always in affordable housing. Two years ago a substantial portion of housing was in the $140,000 to $200,000 range; today permits are picking up for homes in the $80,000 to $100,000 range. The total value of permits has dropped, a graphic signal for a downturn." Another indicator, according to Milloy, is that activity on the west side is slowing down.

Not for Centex Homes, however; it has a big west side development in progress, along with Sonora and High Desert developments in the northeast. Centex sales, marketing and land acquisitions director Lynn Johnson says that despite this activity, building is slowing down overall. "It's part of a general national cycle, not a permanent condition," she says. "I see a shift downward to address a more affordable market, homes in the $120,000 range and lower."

Also on the west side, Ventana Ranch, the first master-planned community to be built in a decade, has broken ground on a 940-acre mesa and homes are under construction. About 300 homes in Phase I are expected to be completed over the next 18 months. Bob Murphy, president of Sandia Properties, the developer, says that he expects some 4,000 homes to be built in the next five to seven years.

Susan Craig covers the construction industry for the New Mexico Business Journal.