A design and construction industry recovery may not be too far distant, if recent indicators are drawing an accurate picture. The most recent American Institute of Architects (AIA) Architecture Billings Index (ABI), as well as the latest U.S. Census Bureau new residential construction data have shown sustained improvements in the past few months.
After two months of modest improvements, the AIA's ABI increased once again in April with a 2.4-point gain over March for a score of 48.5. While this reflects a continuation of the overall decline in demand for architecture services, the AIA notes that it also is the highest ABI since January 2008. Inquiries for new projects increased again, as well, scoring 59.6, up from March's score of 58.5.
Still, don't expect a swift recovery. "The construction industry tends to lag behind the overall economy as conditions improve following a recession," says Scott Frank, AIA's director of media relations. "The three-month uptick is very encouraging for the design and construction industries, but recovery is happening at a slow pace."
During April, the commercial/industrial design sector showed the strongest performance with a score of 48.5, up from 44.7 in March. The mixed-practice sector also improved significantly, scoring 48.4 in April, followed by the multifamily residential sector with a score of 45.8 (down from 47.3). The institutional sector maintained a score of 46.8. Regionally, the Northeast led with a score of 51, an increase over its March score of 47, followed by the Midwest at 49.2, which declined slightly. The South rose slightly to 46.5, and the West declined to 44.7.
"Tight credit continues to be a problem, particularly for smaller architecture firms. We have heard reports of countless projects being shelved indefinitely or canceled outright because banks are not lending for real estate projects," Frank says. "If that persists, then it could jeopardize a full recovery."
The U.S. Census Bureau's April New Residential Construction Report also shows some continued improvements, although permits for all types of housing declined significantly.
Permits for privately owned housing units fell to a seasonally adjusted annual rate of 606,000, 11.5 percent below March authorizations, and permits for single-family units declined 10.7 percent to a rate of 484,000 units. Authorizations for units in buildings of five or more units fell 14.9 percent from March.
Overall starts of privately owned housing units rose 5.8 percent to a seasonally adjusted annual rate of 672,000. Single-family housing starts increased by 10.2 percent from March to a rate of 593,000, but starts of units in buildings with five or more units fell 23.6 percent. Completions for all housing types increased in April, with overall privately owned housing unit completions going up by 19.2 percent to a rate of 769,000. Single-family housing completions increased 14.6 percent to a rate of 564,000 and completions of units in buildings of five or more units jumped 33.3 percent over March.
The economy finally appears to be getting back on its feet. But the design and construction industries didn't go bust and bottom out overnight, and they certainly will not bounce back overnight, either. Economists predict it will take nearly three years to return to normal and even longer to reach a full recovery.
However, "the housing market is coming back to life, GDP is up, and unemployment is decreasing," AIA's Frank notes. "The construction industry is likely to catch up to the overall economy through the rest of this year and into next year."
The outlook is much less frightening moving forward than it has been for the past few years. According to National Association of Home Builders' (NAHB) forecasts, 2010 will be a year of stabilization in home prices, healing of credit conditions, and a return of builder and consumer confidence.
Increasing job formation and rising employment will drive demand for housing, and although there currently are about 10 million vacant homes on the market, Mark Zandi, chief economist for Moody's Analytics, expects that demand will work through the excess housing in less than two years.
"I expect single-family and multifamily starts of approximately 700,000 units this year, closer to 1 million in 2011, and by 2012 closer to trend, which is about 1.7 million units," said Zandi during the NAHB's Construction Forecast Conference on May 18.
Also, access to jumbo loans will improve as lenders begin to feel more comfortable with the credit environment, Zandi notes. "Jumbo lenders will become more aggressive and we'll see more lending as we make our way through 2010 and into 2011."