A design and construction industry recovery may not be too far distant, if recent indicators are drawing an accurate picture. The latest U.S. Census Bureau new residential construction data, as well as the most recent American Institute of Architects (AIA) Architecture Billings Index (ABI), have shown sustained improvements in the past few months, and economists’ housing industry forecasts are mostly sanguine.

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.”

“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 from March.

Although there are several ways the housing recovery could be derailed, the economy finally appears to be getting back on its feet, according to economists at the National Association of Home Builders’ (NAHB) Construction Forecast Conference in May. But it’s important to remember that 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 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 increasing demand will work through that excess housing in less than two years.

Housing demand sank to its lowest point in 2009—bottoming at 550,000 units—after peaking at 2.1 million in 2005. In response to increasing demand for housing, Zandi said during the NAHB’s conference, “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.”

Unfortunately, foreclosures are likely to rise as strategic defaulters walk away from homes that have plunged in value, Zandi predicts, which could hinder the recovery. However, according to David Crowe, the NAHB’s chief economist, areas of the country that experienced a less dramatic boom and bust, and therefore suffered the least economic impact and have the least risk of increasing foreclosures, will be the first to recover.

Overall, lenders are starting to loosen restrictions, making access to mortgage credit more available. Zandi notes lending conditions should continue to improve through 2011. Also, access to jumbo loans will improve as lenders begin to feel more comfortable with the credit environment. “Jumbo lenders will become more aggressive and we’ll see more lending as we make our way through 2010 and into 2011,” he says.

Crowe predicts that although remodeling fell off during the housing downturn, it didn’t suffer nearly as much as new construction. Remodeling will pick up during the recovery and may even improve at a better rate than the overall construction market, according to Crowe. “People whose home values have been damaged may in fact decide to stay in place and remodel rather than move as they would have in the past,” he says.

By Stephani L. Miller

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