Construction industry is surviving amid troubled market

The housing market has been struggling, which has led to problems for commercial real estate, a credit crunch, tighter real estate loan standards and developers having trouble making loan payments.

However, it appears the construction industry has yet to be significantly affected. According to, spending on private, nonresidential real estate projects increased 17 percent during the past year. Architecture firms, which tend to be the first to lose work in the face of real estate troubles, are doing well. In fact, The American Institute of Architects' July architecture billings index hit the second-highest level since 1995.

But architects and contractors cannot relax completely and need to look for signs that the credit crunch may be moving through the real estate sector.

"It's a big risk," says Tim Yeager, professor at Fayetteville-based University of Arkansas' Sam M. Walton College of Business. "Construction and development loans and commercial real estate lending in general are going to slow way down. Some banks are in trouble. That doesn't necessarily mean they are going to fail, but management is being replaced."

According to a Federal Deposit Insurance Corp. survey, U.S. banks and thrifts reported a 40 percent increase in past-due construction and development loans in the second quarter of 2007. In another survey, about 25 percent of participating banks said they had recently tightened standards for making commercial real estate loans.

The Associated General Contractors of America received mixed responses when it asked members whether troubles in the financial markets were affecting demand or financing in their industry. Many members said banks were eager to lend money; others said loans were delayed by lenders reworking the pricing and risk-analysis models.

Date : 8/30/2007