Building industry teetering toward growth
Wednesday, May 25, 2016
Builders continue to get mixed signals as to whether conditions are improving.
Data reports from the nonresidential sector show a month-over-month decline from March to April but a general positive trend for the year. On the residential side, sales were up in April but have remained flat or are down slightly compared to the same period last year.
Industry experts nonetheless remain cautiously optimistic that demand will increase in the second half of the year.
How well the industry is doing as it moves into the final month of the second quarter depends in part on whose barometer you are using. Dodge Analytics, which bases its calculations on the total dollar value of projects, reports that new construction starts as a whole declined 8 percent in April compared to March, and that the value of new construction is down 3 percent compared to a year ago.
FMI Corp., which uses an index compiled from a representative panel of construction firms, finds activity has improved in the second quarter. Its Nonresidential Construction Index (NRCI) rose from 55.6 for the first quarter to 61.3 for the second quarter. Panelists' construction business hit the highest point on the index in four quarters, at 76, and their outlook sentiment improved 13.7 points, to 74.3.
This indicates "a solid recovery," according to FMI, and shows the industry is moving in a positive direction.
In releasing the results of its Architecture Billings Index (ABI) for the month of April, the American Institute of Architects states that spending on nonresidential construction increased 11 percent in the first quarter of this year compared to the same quarter last year.
The ABI dropped slightly in April from March (50.6 vs. 51.9, respectively), yet remains in positive territory, and new project inquiries also declined by about a point. Commercial building activity held steady, at 52.0, while multifamily residential activity declined two points, to 53.7.
Data issued by the Departments of Housing and Urban Development and Commerce show housing starts were up 6.6 percent overall in April over March. Single-family starts were up 3.3 percent, and multifamily starts were up 13.9 percent. Issuance of new permits also rose by 3.6 percent. While a positive sign for the housing industry, starts are down 1.7 percent compared to 2015, reflecting some softness in the market during the first quarter.
Demand for housing is increasing steadily slowly, it appears, with the National Association of Realtors reporting sales of existing homes rose for the second month in a row in April, by 1.7 percent. A shortage of inventory in affordable existing homes is helping to boost sales of new homes.
The National Association of Home Builders says despite weaker-than-anticipated business to date this year, builders' confidence held steady in May (remaining at 58 on its index for the fourth straight month), and expectations for growth in the next six months rose three points.
Builders keep looking for some stability as market conditions and sales continue to seesaw from month to month. In addition to uncertain demand and a constantly shifting economic forecast, builders are facing other challenges, including a near-critical shortage of skilled labor, increased regulation, decreasing pool of potential sites, and rising costs of construction materials and labor.
Current indicators suggest the industry should gain some momentum in the second half of the year. In the short term, though, the way there will likely remain wobbly.
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