by Calculated Risk on 11/18/2009 09:30:00 AM

From the American Institute of Architects : Index remains in negative category despite improvement

Amidst a continued high level of inquiries for possible new projects, the Architecture Billings Index (ABI) reached its highest mark since August 2008, just before the serious credit problems emerged in our economy. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the October ABI rating was 46.1, up sharply from 43.1 in September. This score, however, indicates a continued decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry score was 58.5, following the 59.1 mark in September.

“This news could prove to be an early signal towards a recovery for the design and construction industry,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “On the other hand, because we continue to get reports of architecture firms struggling in a competitive marketplace with a continued decline in commercial property values, it is far too early to think we are out of the woods.”

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index has remained below 50, indicating falling demand, since January 2008.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.

Historically there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on commercial real estate (CRE). This suggests further significant declines in CRE investment through most of 2010, if not longer.

by Calculated Risk on 11/18/2009 08:30:00 AM

Click on graph for larger image in new window.

Total housing starts were at 529 thousand (SAAR) in October, down 10.6% from the revised September rate, and up from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959). Starts had rebounded to 590 thousand in June, and have move sideways (or down) for five months.

Single-family starts were at 476 thousand (SAAR) in October, down 6.8% from the revised September rate, and 33 percent above the record low in January and February (357 thousand). Just like for total starts, single-family starts have been at this level for five months.

The following graph shows total housing starts and the percent vacant housing units (owner and rental) in the U.S. Note: this is a combined vacancy rate based on the Census Bureau vacancy rates for owner occupied and rental housing.

It is very unlikely that there will be a strong rebound in housing starts with a record number of vacant housing units.

The vacancy rate has continued to climb even after housing starts fell off a cliff. Initially this was because of a significant number of completions. Also some hidden inventory (like some 2nd homes) have become available for sale or for rent, and lately some households have probably doubled up because of tough economic times.

Here is the Census Bureau report on housing Permits, Starts and Completions.

Housing Starts:
Privately-owned housing starts in October were at a seasonally adjusted annual rate of 529,000. This is 10.6 percent (±8.7%) below the revised September estimate of 592,000 and is 30.7 percent (±8.3%) below the October 2008 rate of 763,000.

Single-family housing starts in October were at a rate of 476,000; this is 6.8 percent (±7.5%)* below the revised September figure of 511,000.

Housing Completions:
Privately-owned housing completions in October were at a seasonally adjusted annual rate of 740,000. This is 1.9 percent (±12.4%)* above the revised September estimate of 726,000, but is 29.9 percent (±9.7%) below the October 2008 rate of 1,055,000.

Single-family housing completions in October were at a rate of 528,000; this is 10.7 percent (±14.5%)* above the revised September figure of 477,000.

It appears that single family starts bottomed in January. However, as expected, it appears starts are now moving sideways - and will probably stay near this level until the excess existing home inventory is reduced.

by Calculated Risk on 11/17/2009 11:59:00 PM

From the LA Times: California faces a projected deficit of $21 billion

Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms, according to a report to be released Wednesday by the state's chief budget analyst.

The new figure -- the nonpartisan analyst's first projection for the coming budget year -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.

The projected deficit includes $6.3 billion for the remainder of the current fiscal year (ends June 30th), and $14.4 billion for the next fiscal year.

It just keeps getting worse ...

by Calculated Risk on 11/17/2009 09:56:00 PM

David Leonhardt writes in the NY Times: A Stimulus That Could Save Money

White House officials are now looking at creating a new version of cash for clunkers — this time for home weatherization.
...
[John] Doerr calls his proposal, which would give households money to pay for weatherization projects, “cash for caulkers.”... The housing bust has idled contractors and construction workers, who could be put to work insulating homes and caulking air leaks. Many households, meanwhile, would save substantial money — not to mention help the climate — by weatherizing their homes, research by McKinsey & Company has shown.
...
The Doerr plan would cost $23 billion over two years. Most of the money would go for incentive payments, generally $2,000 to $4,000, for weatherization projects. The homeowner would always have to pay at least 50 percent of the project’s total cost.

This proposal has merit. There are many unemployed construction workers - so this would help with unemployment (a real jobs bill) - and weatherization would save the homeowners money over time.

Added: Of course homeowners with negative equity will probably not want to invest in their homes since deferred maintenance is common for "debtowners". (ht Tim waiting for 2012)

by Calculated Risk on 11/17/2009 07:34:00 PM

From the WaPo: House shifts focus to 'jobs, jobs, jobs, jobs'

"It's jobs, jobs, jobs, jobs," Rep. John B. Larson (D-Conn.) ... said ... "Members of this caucus feel ... that a jobless recovery is just simply unacceptable to us."

And Reuters list some possible items "under consideration": U.S. House plans jobs bill before year end

* A transportation bill that could cost up to $500 billion

* A tax credit for businesses that create jobs

* Assistance to state governments ...

* Low-interest loans for small businesses

* Another extension of unemployment benefits ...

* An extension of health-insurance subsidies for the jobless

* A transaction tax on over-the-counter trades in unregulated "dark markets"

Why wasn't the the last stimulus package - the one with the inefficient housing tax credit and the "gift" to homebuilders - why wasn't that focused on jobs?