2013 Mid-Year Construction Outlook Calls for Modest Continued Growth

General consensus from association chief economists is the construction industry - both residential and nonresidential - will see growth in 2013 and 2014, but it will be a modest growth.

The chief economists from the American Institute of Architects (AIA), National Association of Home Builders (NAHB) and Associated Builders and Contractors (ABC) recently shared their views during a mid-year construction forecast webinar.

Kermi Baker, chief economist for AIA, stated that virtually all major residential sectors are now reported as growing. Factors influencing this growth include home prices beginning to come back and the foreclosure crisis winding down. However, some sectors are performing better than others with cities in the western U.S. seeing some of the strongest increases while cities in the eastern and midwest U.S. are seeing some of the strongest decreases in housing prices.

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On the nonresidential side, Baker says that office, retail, hotel and the industrial/warehouse sectors are improving. Baker says expectations for groth in 2013 and 2014 are "good - not great". He says the commercial sector should see continued recovery through 2014 while the institutional sector will begin to see some acceleration. According to Baker, all sectors should see solid growth next year.

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While the Architectural Billings Index has been volatile, it is generally trending up, Baker says. The index saw eight straight months of gain before it hit a slight set back in April. However, the index is showing the strongest growth since the downturn began, Baker says.

According to David Crowe, chief economist for NAHB, housing indicators have started to show a bounce. He says sales of new homes should move at a faster rate than existing home sales on the single family side. With a lower inventory of existing homes for sale, this will drive more buyers to the new home side.

Overall, Crowe says the single family sector is moving up but not gaining speed. The multifamily sector should continue to see decent growth this year as it is nearly back to the level it was in the early 2000s. Crowe says the remodeling sector will experience a relatively soft future.

A few factors that will continue to affect the residential side inlcude the foreclosure inventory which varies by state and remains high and the credit issues that home buyers are still seeing as prices begin to increase. Government policy uncertainty may also affect the residential side over the next year.

Leading indicators suggest there will be modest growth in nonresidential, says ABC Chief Economist Anirban Basu. While conditions are ripe for continued recovery, many project owners are still reluctant to move forward meaning any recovery will be gradual.

The nonresidential side of the industry is still trying to recover from the large lost of jobs since December 2007 and a lack of momentum in nonresidential spending.

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