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De-leveraging threatens construction demand

September 22, 2008  |  from Reed Construction Data:Notes from Jim Haughey

Financial markets are rapidly de-leveraging, drastically reducing the amount of financial capital available for capital investment. After a shake out and adjustment period, the cost of funds for construction and other capital investments will be much higher after seven years of cheap capital. And the lingering lack of trust in the solvency of private financial institutions will keep their borrowing cost – and, hence their lending rates – higher than normal relative to risk free government bonds for many months.. Both the economy and construction will be stuck in subpar growth for several more years with a dip into negative growth increasing likely in the next few quarters.

Filed: Industry-Outlook