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Recession + building trade = ?


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The question: What do you think will happen to the building trade when this looming recession hits?

The back story: I'm currently in the kitchen industry and I've spoken to a lot of our suppliers recently as well as a few builders. The over arching story is no surprise; it's been a crazy busy 24 months and suddenly over the last 2 months it's dropped off a cliff. This was also surprisingly said by our rep for a large appliance company, probably why he finally had time to come and see a small independent such as ourselves.

Builders have mentioned they were booked (and currently still are) over 12 months in advance but the size of the jobs they could cherry pick from has already started to dry up.

I've been reading up about what happened to the building trades during the 2008 crash but this time it's different, right? Does the fact the industry has seen a boom recently mean it will come crashing down harder? Will prices of materials temporarily reduce as companies look to sell off excess stock/over ordering due to the unexpected massive drop in sales?

 

I'm currently waiting on planning permission (hopefully Oct) and in talking to builders with the hope to break ground in spring next year (at best). Which is why I've started to think deeply about the industry... And, well, to be perfectly honest, see where I can save/capitalise. 

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I don’t think anyone knows 

I run a framing - plastering - Tiling business and I’m still booked for the next 20 months 

Whilst the commercial jobs will be unaffected We have two large housing sites and there’s no sign of those slowing But that could change overnight 

I think this time is ver different than 2008 and the two previous recessions I’ve been through 

There are lots of job vacancies 

Previously in the months leading up to a recession shops and businesses where closing at an alarming rate 

 

Like Covid Talk of a recession will soon fizzle out if a war breaks out or there’s a spate of dog attacks
If we had listened to the so called experts we would be six months in to a 1920s type recession 

With stockbrokers throwing themselves out of window 

 

with inflation so high It’s bound to outstrip growth 

= recession But people will still have jobs 

 

I may be totally wrong 

Steel and other commodities may fall through the floor 

Builders merchant reps could be calling on a daily basis with 40% discount offers 

 

My friend runs a medium size Groundwork’s company 

He built in 2010 

5 bed Total build cost 126k 

But he had no work on and machinery leases to pay and very little money coming in 

Hes nearly finished hissecond self build Lots of well paid in 

But has hated it this time 

Everything in short supply 

Trades with bad work and bad attitudes 

We never seem to get something in between 

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I don't see massive reductions in raw materials on the horizon beyond a few odd deals on over-stocks. Energy, interest rates, food and supply chain problems will keep the upward pressure on prices and those will translate into some overtime reductions and job losses in manufacturing as demand slows, rather than price reductions. There will definitely be a drop in consumer demand overall affecting refurbishment and appliances but there are still plenty of sought-after locations in the UK where property demand outstrips supply and the buyers are those less impacted by immediate inflation, so I think that will keep the engine going and keep many trades busy. Larger spec housebuilding on peripheral sites might slow - but there's probably scope in the margins there for some house price reductions and deals, and because of the shortage of housing the demand will begin to increase again.

So I reckon it will be patchy.

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The recession has already started.  The last 2 months the economy contracted.  It's not called a recession yet because that takes 3 months of contraction, but I am not expecting a sudden turn around so am sure the recession has started.  Perhaps someone will do some creative accounting to show a tiny growth in the next month just to avoid calling it out as a recession just yet?

 

High inflation, and low interest rates is a bad mix (for people with savings)  consumers are already reducing non essential spending so they can pay for the essential things that are going up but their wages are not going up anything like fast enough to match.

 

Train drivers on strike next week, no doubt the first of many such strikes as workers demand pay rises to match inflation, SWMBO just voted against a 2% pay offer.  I have a bit more control, being self employed I put my hourly rate up  15% earlier in the year, first rise for many years. I thought we were heading for a winter of discontent, looks like it's starting earlier as a summer of discontent?

 

I am surprised the housing market has not collapsed?  Who wants to commit to a big mortgage with rising inflation, rising (too slowly) interest rates and WWIII looming?

 

The message from the BOE is we are all being naughty people and spending too much fuelling inflation so we must raise interest rates to punish you naughty consumers who dare to borrow money so spend. Yet interest rates are still at "emergency low" levels and if they went up to the levels really needed, i.e. close to inflation rate, that would really crash the economy and there would be a lot of mortgage defaults and repossessions.  It is not high consumer spending causing the high inflation, so the traditional raise interest rates to slow spending is going to do nothing to stop fuel and food costs rising, so is futile (though I believe interest rates need to rise a LOT for other reasons)

 

The truth is the economy has been propped up with unrealistic low interest rates for the last 14 years and we are now stuck with a weak economy that can't support proper interest rates.

 

But then there is the conflicting messages about low unemployment and there are in fact more job vacancies than there are unemployed people, so in theory there should not be any unemployed?  That makes this different to the 70's and 80's when there was real high unemployment.

 

And now they are criticising the "economic inactive"  How dare you decide you have had enough of working, you have enough savings and pensions so you retire.  How dare you do such a thing?  (next year for me).

 

I am no economist, but I am glad I have no borrowing and soon to be out of the workplace, but the steady, comfortable, secure retirement I had been looking forward to is looking a lot less certain and things are looking very fragile indeed.  I am a worried man.

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3 hours ago, ProDave said:

The recession has already started.  The last 2 months the economy contracted.  It's not called a recession yet because that takes 3 months of contraction, but I am not expecting a sudden turn around so am sure the recession has started. 

 

The formal definition of a recession is two consecutive quarters of contraction. 

 

3 hours ago, ProDave said:

I am a worried man.

 

From my perspective, the two most likely outcomes are severe recession (and possibly depression) or massive (possibly hyper-) inflation. I don't see any way we go from the current situation to a situation of stable growth, inflation, and employment.

 

It's like the punchline to that joke about the guy asking for directions from a farmer: "Well I wouldn't start from here".

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1 hour ago, ProDave said:

I am surprised the housing market has not collapsed?  Who wants to commit to a big mortgage with rising inflation, rising (too slowly) interest rates and WWIII looming?

 

 

It's an interesting question.

 

Fixed rate mortgage lending has increased over the last year because people expect interest rates to rise so they are borrowing more to get the best deals before they are gone.  Over the same period, credit card debt is being paid down. 

Apparrently these two things rarely happen simultaneosly and is a bad omen.

 

The conclusion is that this temporary increase in mortgage lending has the effect of artificially inflating house prices but that lending will come to an abrupt stop once those 5yr 1.75% deals come to an end.  That is the when the experts predict the housing markiet will likely crash.  Will it?  Maybe.

 

I don't want inflation baked into my contractors tenders that may not be there in 6 months.  If I only I had a crystal ball.  Whatever happens to the housing market stagflation is here and is not going to get any better.

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16 minutes ago, Mr Blobby said:

 

...

 

The conclusion is that this temporary increase in mortgage lending has the effect of artificially inflating house prices but that lending will come to an abrupt stop once those 5yr 1.75% deals come to an end.  That is the when the experts predict the housing markiet will likely crash.  Will it?  Maybe.

 

...


I can certainly see that (artificial inflation). The valuation on the house we lived in last, which we now rent out, has jumped 86% in the last 3 years. It's insane. Rental values in the area don't seem to have followed though...

Certainly seems like a bubble getting ready to burst, to me.

Edited by jayc89
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Since 2007, when the banking crisis became a thing, and the subsequent QE that pumped billions of cash into the economy, we have been waiting for the reckoning day.

The government backing businesses and workers during COVID has delayed it.

A good, rough, indicator is to look at the published Money Supply figures. I have not looked but as a percentage of GDP, or household earnings, I suspect the are pointing to less cash in the economy.

In the olden days, people put there money into gold, trouble was, there was little control over gold supplies, then governments took control and reduced, or increased, gold supplies for their own ends (war, win elections, overseas trade). This was a cumbersome physical process, so the FIAT system was introduced, was then easy to control the supply, and value.

Well we thought it was. Now we can be disproportionally affected by external events that can destabilise our currency. Once a currency is devalued, it is much harder to reclaim that lost value.

Add in general inflation, sector inflation, and interest rate rises, things are not looking good.

 

So what to do about it from a business point if view.

Reduce costs, only quote for high end jobs (high earners are better shielded), and always quote to make a net profit.

 

Turnover is vanity, profit is sanity.

 

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So the government advice is don't expect your salary to rise to keep up with inflation.

 

Yeah right, we should all just accept a low pay rise and shut up and watch our standard of living plummet.

 

with government advice like that I have very little confidence they have the slightest clue how to solve this problem.

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47 minutes ago, ProDave said:

with government advice like that I have very little confidence they have the slightest clue how to solve this problem.

'Very little confidence' zero would perhaps be more like correct although I appreciate that in the limit very little could approximate to zero. 

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