The Downturn in the housing market and the construction industry is a leading indicator of the overall economic health of the country, the House of Representatives Committee on Small Business noted in an economic outlook at the end of 2008.
The committee examined the effects of the financial crisis on small businesses and entrepreneurs, including those involved in construction.
The report pointed out that in the waning months of 2008 there continued to be a decline in construction work. In September alone the industry lost over 35,000 jobs. In addition, more than 500,000 construction jobs have been lost since the beginning of 2007.
Most of those job losses have been in the residential sector, where countless small businesses are involved in brick laying, carpentering, and construction of residential and commercial buildings.
By some estimates, residential investment, and construction alone accounts for roughly 5%-6% of the nation's gross domestic product (GDP), while all other ancillary services that support the housing industry comprise another 5%.
Although some industries are struggling, the housing industry is facing a crisis not seen since the Great Depression, the report stated. The inventory of unsold new homes remained elevated at 10 months, well above the long-term average of six months. Meanwhile, home prices continued to fall, just as mortgage delinquency and foreclosure rates continue to climb.
“Even more troubling is recent data released by the US Commerce Department, which reveals that housing starts nationally declined by 6.3% to an adjusted rate of 817,000 units,” the report stated. “That marks the slowest building pace since 1991.”
The downturn in the housing market has impacted small businesses whose livelihoods are built on the housing industry. Over 80% of all home builders are entrepreneurs, and most of them are now struggling to makes ends meet. Some have had to tap into home equity, borrow from their 401(k), or max out credit cards just to keep their businesses running. Furthermore, there are millions of additional small businesses that rely on the housing market, such as realtors, mortgage lenders, real estate appraisers, plumbers, and contractors.
As a myriad of economists, political leaders, and government officials have commented, the economy is unlikely to see positive growth until the housing market corrects itself, the report indicated