This is one time we should be grateful for mixed messages.
According to housing economist Kermit Baker, with some economic indicators up (housing starts) and others down (consumer confidence), “we are getting conflicting signals” about the economy, “which is typically the case when we are near a turning point.”
Baker, chief economist for the American Institute of Architects (AIA) made his remarks last week in a joint teleconference with fellow economists Kenneth Simonson of the Associated General Contractors (AGC) of America and Jim Haughey of Reed Construction Data.
His colleagues generally agreed, suggesting that the economy should begin growing again in 2010. “Is the stimulus working? Yes,” said Haughey.
One winner in the recovery should be single-family construction. Construction spending in that area should grow 10% next year, according to Haughey, who also forecasts 528,000 single-family starts and 135,000 multifamily starts in 2010. “If you’re looking at the level of activity, it’s going to look like a recession for the next year and a half,” he cautioned.
But those numbers still represent a dramatic improvement over 2009. In January of this year, for example, builders started single-family homes at a seasonally adjusted pace of (ouch) 347,000 units. That situation has only improved slightly as the year has continued; Haughey expects 2009 will close with 375,000 single-family starts.
“The construction industry really suffered a heavy hit last September,” Simonson noted in his presentation, particularly in terms of employment. While total private employment in the country has fallen 5% between June 2008 and 2009, construction employment has plunged by 13.7%.
In states where housing was a major economic force during the boom, the drop has been even worse. Within that same one-year period, Arizona has lost 26% of its construction employment—the highest in the nation. The figures are almost as bad for places such as Nevada (down 23%), California (down 19%), and Florida (down 16%), where the struggling housing market has resulted in numerous job reductions at home building firms and the subcontractors who work for them.
But Simonson, like Haughey, thinks those days are behind the industry. “What I see going forward is a turn in the single-family home building market. I think we will see improvement in all the single-family statistics in 2010,” he said.
As that occurs, builders must prepare themselves—and their budgets—for higher materials prices. While the remainder of 2009 may offer “a limited-time sale” on materials, Simonson said, that will change in 2010. He forecasts increases of between 6% and 8% overall for building materials, which includes asphalt, concrete, copper, gypsum, steel, and more. “Construction requires physical delivery, thus industry is subject to price spurts, transport bottlenecks, [and] fuel price swings,” he noted in his presentation.
Compared to single-family, Simonson had less hopeful words for those who work in multifamily construction such as apartments and condo buildings. “Multifamily is in a period of prolonged decline,” said Simonson, who foresees “no improvement until 2010” for multifamily.
Alison Rice is senior editor, online, at BUILDER magazine.
Learn more about markets featured in this article: Phoenix, AZ.