The long expected housing slowdown, predicted in this column and in other business publications, has finally taken hold of the construction materials industry. This slowdown is being felt particularly by those ready mixed producers whose businesses have a large residential component.
But there is good news: The outlook for the next quarter century looks extremely robust. The Portland Cement Association (PCA) and other groups have recently issued reports that all collectively point to continued and unprecedented growth in cement consumption, with corresponding growth in ready mixed concrete volume.
First, the housing slowdown is developing into a deeper issue in certain key markets, while a handful of markets remain insulated altogether. According to The Wall Street Journal, the number of homes on the market in Orlando, Fla., is almost five times greater compared to last year, while housing inventory has quadrupled over the same period in Phoenix and Tampa, Fla. In the Washington, D.C. area, the number of homes for sale has almost tripled. These levels have not yet resulted in any price softening, but this could be the next shoe to drop.
Most of Texas and cities like Seattle seem insulated. In Texas, the price of oil has led to the typical cyclical boom in housing, particularly in major cities such as Houston and Dallas-Fort Worth.
The continued growth of high-tech in Seattle, coupled with the strong performance of Boeing and the related robust hiring, has had little impact on the local housing market, despite higher interest rates. Experts expect this to continue through the end of 2007 before markets begin to stabilize, although some feel that a recession in the next couple of years could result in longer and deeper weakness in housing.
Good news ahead
Long-term, research indicates incredible growth for our industry the next quarter century. To illustrate, ready mixed concrete production was a 200 million cubic yard industry 25 years ago, at an average price of $40 per cubic yard. This equated to an annual $8 billion industry.
The 2006 production run rate is about 450 million cubic yards at a price somewhere north of $70 per yard. This amounts to a $32 billion industry. So while production has more than doubled in the last 25 years, the dollar value of concrete has quadrupled.
And the news gets better. According to the U.S. Census Bureau, our current population of 295.5 million should reach 363.5 million by 2030, a 23% increase. Arizona and Nevada are expected to double their populations, followed by Florida, which expects an increase of 80% (see table.)
Per capita consumption of cement will increase 25% by 2030, with a corresponding increase in ready mixed concrete sales, according to PCA.
While this is less than the scorching 40% increase of the past 25 years, we are now starting from a higher baseline; it still represents a projected market in excess of 600 million cubic yards annually at an average selling price that will surely be more than $100 per yard, translating into a better than $60 billion per year industry.