Construction shuts down as building values plunge: Report

"Builders appear to be pulling back on construction as fast as they can," and "there is no way of getting around the deteriorating fundamentals," write Wells Fargo Securities economists Mark Vitner and Anika Khan, citing grim Fed and Commerce Department data in a report to clients. "Vacancy rates have increased, rents have declined and delinquency rates have risen."

"We expect construction activity to continue to pull back over the next 18 months." And "property values still face significant further declines." Commercial real estate delinquency zoomed from 2% to 8% in the past year, the highest since the savings-and-loan bank failures of the early 1990s.

Things would look worse but for a mini-boom in oil refinery, coal and power construction projects. But even in energy, many jobs are now "being scaled back, extended or canceled outright" as demand for power "remains at historical lows." Architectual orders are "exceptionally weak. The low level of pipeline activity suggests a meaningful recovery is still a long way off."

Instead of moving in together to start new families, young people are moving home with their parents or clubbing up in crowded dormitory-style units. Apartment rents have been falling since last year. Vacancies, at nearly 8%, are the highest since before 2000. "A significant improvement in demand is still likely two years away." 

One-seventh of office space is vacant. Office rents are falling, down for four straight quarters. Office space averaged nearly $300 a square foot in early 2007; it's now below $140.

One-tenth of stores are vacant - "the highest on record." New stores in the second quarter were below 3 million square feet -- "the lowest on record." Back-to-school sales are weak. "The prospect of another dreadful holiday season will lead to another round of bankruptcies and store closings in 2010."

Industrial warehouses and factories are falling vacant. "Recovery is still several quarters off," and it will start in the low-wage South, not the import-oriented Northeast or California.