Builders: Are we really better in 2010?

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By Thomas M. Farasy
President, Maryland State Builders Association

The general feeling is that the economy is better in 2010.

Certainly, for the employed group; they have adjusted their mental frame of mind for this new normal.

For the development/construction industry and all the small- and medium-sized businesses, there is grave concern. Acquisition, development and construction financing, which is our capital source is in a holding pattern – there is very little lending. Real estate values have plummeted 40% to 45% and it is uncertain when prices in many markets will begin to stabilize.

Recent economic news tells the story:

1. Fannie Mae and Freddie Mac delisted from the NYSE.
2. Home starts fall 10% in May 2010 vs. April 2010.
3. The tax credit expired May 1, 2010.
4. Unemployment remains at record levels and layoff announcements continue to make news.
5. Job gains are significantly influenced by Federal employment.

It is clear at this point that the “recovery” will take a form and a lifespan that we have not experienced before.

In prior recoveries, construction has led us out of economic downturns. There is a growing illumination that this will not happen this time.

Also, in prior recoveries, there has been a demand surge for new homes; this recovery will not enjoy a demand surge. Several reasons explain this – foreclosure homes on the market, continued mortgage delinquencies and foreclosures, record unemployment, limited private sector job growth, lack of financing in the marketplace, bank capital pressures, and an avalanche of government regulation.

The new regulation related to the Obama Executive Order overseeing the Chesapeake Bay clean up effort may further undermine efforts to stabilize the construction industry. The end goal of rebounding to profitability in the midst of an aggressive regulatory campaign will certainly slow progress to recovery.

The Maryland Legislature in the 2010 Session had a chance to provide some relief to the industry by extending the construction and development permit tolling provision it enacted in a limited manner the previous year; yet the Senate refused to act on the measure.

BRAC is coming fast and should serve as an economic stimulus for Maryland; yet the necessary infrastructure and other stimulus programs that need to be in place are not there! These programs need money, which no one has.

We are in a serious need of political leadership to balance the Maryland economy and the goals of regulation, to provide the right monetary stimulus to encourage smart, sensible, sustainable growth in Maryland.

Thomas M. Farasy is President of the Maryland State Builders Association.

Read previous Center Maryland op-eds by Thomas M. Farasy:

Action Needed – Federal Intervention on the Residential Construction Loan

Did Stormwater Rules Get Eased?

What are the real facts?

Are jobs really a priority?
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