The latest American Institute of Architects (AIA) Billings Index was released yesterday showing an increase in inquiries but a slight decrease in billings. Inquiries hit their highest level since August 2008, right before Lehman's collapse and the market's nosedive.
The AIA conducts its monthly "Work on the Boards" survey to gauge changes in activity. The results tend to be be a leading indicator for construction activity 9-12 months down the road. Although the index focuses on commercial activity, it has also moved in line with residential construction as well. The chart below, shows the S&P Home Builders Index compared to the AIA numbers over the past 2 two years.
So does the rise in billings mean potential growth for homebuilders like Pulte Homes , Hovnanian or KB Homes ? On a national level the billings index was up to 46.1, but remained below the 50 marker which is the threshold for growing / shrinking demand. On a regional level, the AIA billing numbers were all below 50 as well; improved billings in the South drove the overall increase.
According to Thomas Baio, Principal of Thomas Baio Architects in Metuchen, NJ, the data is not surprising. While he has seen business pick up in the past few months, the mix between new homes and renovations has shifted. "People make these decisions based on three criteria: needs, confidence and cash. The need is clearly there - in fact, there is pent up demand. Confidence is coming back too as people are willing to improve in improving markets knowing the ROI will be there. Access to cash continues to be the number one problem today." said Baio. Today's data on foreclosures and delinquencies suggests banks won't be easing lending standards any time soon either (see story here).
Historically, there has been an option to simply buy a new home. With lending standards remaining tight, people are opting to improve their homes instead. Baio has seen his biggest growth for renovations in the middle market.
While the fact that homeowners are feeling confident enough to forge ahead with their projects is encouraging, if larger groups of the population continue to renovate instead of upgrade, it might be awhile before the homebuilders gain significant momentum.
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