Builders, suppliers, real estate agents and potential house buyers all have an ear to the ground. The numerous professions and fields associated with construction and real estate make up one of the largest components of the U.S. economy. Here we look at the current highs and lows of new construction, equipment exports and the architectural workforce.

The U.S. Bureau of Labor estimates that 6.9 million Americans work in construction and 1.4 million in real estate. About $1.2 trillion in new construction was put in place last year, making the construction field account for slightly less than 10 percent of the total economy, according to Plunkett Research, Ltd.

More than 7 million homes — both new and existing — are sold annually. And there is more than $13 trillion in outstanding mortgage debt in the United States.

A number of small and mid-sized builders have filed bankruptcy across the country, and credit-rating agency Moody’s recently issued a report predicting that a number of large homebuilders could fall out of technical compliance with their debt agreements, leaving them at the mercy of their lenders to grant waivers.

However, some homebuilders disagree with the critics, thinking today’s slowdown is entirely manageable and that, by and large, the industry is better positioned than builders were during the 1990-1991 recession, when many more went bankrupt than have so far in this slowdown.

The following is a basic breakdown of the state of the residential, commercial and government building sectors, as well as construction equipment exports and the architectural profession.

Residential
Between 2000 and 2005, residential construction and sales of existing homes were extremely strong. By the end of 2006, though, the residential market had slumped and home prices were declining in many areas. Housing prices have jumped in the recent housing boom, but personal incomes have not kept pace. The median sales price for new homes in 2006 was $246,100, up from 2005′s $240,900.

Atypically, the housing market was strong during the economic slowdown of 2000-2003. Credit was easier to get, and interest rates were low, helping home sales soar. Many home purchasers today have been stretching to buy their homes, and some have gone into too much debt.

In 2006, 1.46 million new single-family homes were started, down from about 1.71 million in 2005, according to the Mortgage Bankers Association of America (MBAA). Thus far, this year, the U.S. has seen a steady deterioration in the housing market, although a handful of major markets (e.g., Houston, Austin, Seattle and Portland) have remained relatively strong in early 2007. Only 1.09 million new single-family homes are projected to start this year.

As 2007 began, the picture was dim for most major markets in the U.S. The National Association of Home Builders (NAHB) reports that new home sales were down 30 percent for the first quarter of 2007 compared with the same period for 2006. Home remodeling is essentially flat, with $233 billion forecast by NAHB for 2007 relative to $228 spent in 2006.

In May, builder confidence about the state of housing demand declined three more points, matching the 15-year low set in September 2006, according to the NAHB/Wells Fargo Housing Market Index (HMI).

Commercial and Government
While residential construction has been weaker of late, commercial construction has been notably strong. Through 2005 and 2006, there was a tremendous construction market in such sectors as office buildings, hotels, hospitals, shopping centers and state and local government construction projects. These commercial projects are expected to remain a strong, positive influence on the construction market through 2007.

The commercial and government sectors are seeing good growth, with total new construction volume high.

Commercial construction spending is at record levels, according to Plunkett Research, Ltd. Private-sector, non-residential construction in the U.S. last year reached $558 billion, up from $493 billion the previous year, according to the U.S. Census Bureau. Commercial public-sector, non-residential construction was $260 billion in 2006, up from $236 billion the previous year.

As Plunkett notes:

Fueling the growth are steep rises in both demand and construction costs. For example, prices for copper, iron and steel products, PVC pipe, sheetrock and cement have skyrocketed over the past few years.

Moreover, construction for governmental buildings and public infrastructure remains steady, with strong demand for construction of new schools, university additions and highway renovation.

(For excellent up-to-date statistics on the real estate and construction industry, check out Plunkett’s Real Estate & Construction Industry Almanac 2007.)

Construction Equipment
The market for exports of U.S.-made construction machinery closed out 2006 with a gain of more than 34 percent compared with the previous year, for a total of $13.7 billion worth of equipment sold worldwide, according to the Association of Equipment Manufacturers (AEM) in March 2007.

The basic breakdown goes like this:

• Exports to Central America led the way, taking in delivery of $1.3 billion worth of U.S.-made construction equipment.

• Construction machinery exports to South America increased almost 17 percent, with purchases worth $1.9 billion.

• Exports of U.S. construction equipment to Canada improved 22 percent and totaled $5.0 billion.

• Construction machinery exports to Africa gained 34 percent, with purchases worth $640 million.

• Australia/Oceania took delivery of $1.4 billion of construction equipment from the U.S., an increase of 26 percent.

The two world regions showing overall declines for U.S. construction machinery exports were Asia and Europe: exports to Asia dropped 11 percent in 2006 and totaled $1.5 billion; and U.S. exports of construction equipment to Europe were 12 percent lower than the previous year, for a total of $1.85 billion.

Architects: The Profession
First, some key stats on the profession, the workforce and their employers:

• According to the Bureau of Labor Statistics in 2005, architecture firms employ approximately 194,000 people in the U.S.; using data from the National Council of Architectural Registration Boards (NCARB), however, the American Institute of Architects (AIA) estimates the number of architects licensed in the U.S. at 108,000. (Licensure is the highest form of professional regulation.)

• The number of sole practitioners declined 9 percent since 2002, while two-to-four-person firms increased by the same number, indicating that sole practitioners perhaps are partnering up.

• The recently released 2006 AIA survey “The Business of Architecture” indicates that small firms are still dominant, with 96 percent of all offices; yet large offices (50+ employees) control almost 42 percent of all staff and almost 52 percent of all billings.

• Nationally, 66 percent of architects’ revenue can be linked to new construction, while 34 percent is rehabilitation/renovation projects. [Source: AIA, Facts and Figures]

• According to U.S. Department of Labor figures, “payroll employment at architecture firms increased more than 2 percent in 2004, almost 4 percent in 2005, and is on pace to increase close to 5 percent in 2006.” [Sources: Architectural Record, AIA's "The Business of Architecture"]

AIA’s “The Business of Architecture” reveals a subtly changing business. Since the last report, three years ago, it’s hard to say whether the shifts indicate real changes or, as Architectural Record put it, “the temporary bumps and dips experienced by all professions.”

On the other hand, some key shifts in the profession’s behavior are visible: a rapid adoption of green design and building information modeling (BIM), neither of which were even mentioned in the last survey and both of which will only be gaining ground in the future.

As with most industry sectors, the big challenge for firms is recruiting appropriate talent to support all that growth, and finding and retaining the best people is clearly an ongoing strategic priority. This is also boosting wages.

Also worth noting is the short-term solution of outsourcing: Slightly more than one-third of firms outsource work frequently or when workloads are heavy, and only 8 percent of those firms say they send work offshore.

With this, we open the floor for intelligence from the front line. Comments?

Resources

Real estate and construction trends
Plunkett Research, Ltd.

Mortgage Bankers of America Association (MBAA)

National Association of Realtors (NAR)

Census Bureau

Homebuilders in a hole?
by Dean Foust
BusinessWeek: Hot Property, May 18, 2007

Builder Confidence Slips Again In May
National Association of Home Builders/Wells Fargo HMI, May 15, 2007

U.S. Exports of Construction Equipment Gain 34 Percent in 2006
Association of Equipment Manufacturers (via ThomasNet Industrial NewsRoom), March 28, 2007

The Business of Architecture: AIA Firm Survey
American Institute of Architects

New AIA firm survey indicates that while business is good, the profession itself changes slowly
by Andrew Pressman
Architectural Record, March 2007