THE RED-HOT HOUSING MARKET HAS DEFINITELY lost some of its sizzle. That's confirmed by the latest American Institute of Architects (AIA) Home Design Survey billings index, which tracks quarterly business conditions in 600 U.S. residential architecture firms. And if design revenues are a harbinger of what's to come on the building side, some housing sectors could cool to tepid temperatures in the near future.
While 2005 saw more than 2.06 million housing starts, including 1.71 million single-family starts (the most ever in that category), the AIA billings index fell every quarter of the year. The index still remains well within the healthy zone; in the fourth quarter, 34 percent of architecture firms reported billings increases (versus 12 percent reporting decreases), but the increases were modest, indicating that the pace of growth is leveling off.
“A telling sign is that a separate indicator of inquiries to firms for new projects has seen a fairly steep decline over the course of the year, pointing to even slower growth in firm billings in the quarter ahead,” said Kermit Baker, AIA's chief economist, in his analysis. Project backlog times at architecture firms also shortened in the fourth quarter, with the average project holdup cinching from 5.2 months to 4.9 months.
Two remodeling categories—additions/alterations and kitchen/bath—continued to show healthy revenue growth, as did the historically volatile town-house/condo segment. But flat billing activity was noted in both the custom/luxury homes and second/ vacation–homes categories. Billable work for first-time buyer/affordable and move-up home designs saw negative growth. “Some of this slowdown may be merely seasonal, since the fourth quarter of the year is typically a slow time for design and construction activity,” Baker said. Wait and see.