Is there another recession ahead? We’re dealing with weak growth, but there are some positive signs the economy is turning around.
Not according to Kermit Baker, chief economist for the American Institute of Architects and a senior research fellow with the Joint Center for Housing Studies at Harvard.
To the contrary, he believes positive signs of a housing turnaround including stronger architecture billings and a stronger overall real estate industry.
“What’s happening now is that the residential market has recovered and is giving a tailwind to the recovery in the commercial sector,” he offered, adding that the commercial real estate sector has generally been stronger over the past 19 months, while the institutional real estate market, (which includes education, healthcare, government, religious and cultural buildings) has languished somewhat.
Baker points to the growth in real estate construction projects in the Sunbelt. “The Northeast and Midwest are doing better, but the Sunbelt states have been hurt by excess inventory and have been very depressed. That is coming back. Residential is coming back strong and there is a stronger upturn in commercial [real estate],” he said.
Baker noted that household formation rebounded to “close to one million last year.” During the downturn, fewer than half a million households were formed. Beyond that, foreclosures are trending down, at least for the moment.
Still, he takes a cautious tone when talking about the overall strength of the economy. “We’re still dealing with weak growth,” he said. “We’re not out of the woods yet.
While the government’s revised fourth quarter growth from a negative 0.1 percent to a positive 0.1 percent, Baker said it wouldn’t take much to tip the economy back over the edge, into recession.
“With sequestration, non-funding of government, and the debt ceiling problems not fully resolved, [Congress] could shoot themselves in the foot. It could be the situation in Europe that gets worse. It could be international incidents that create problems in the economy,” he said.
“Hopefully we’re a little smarter now and doing some things like the Federal Reserve keeping liquidity available,” he said, adding that homeownership is as affordable as it’s ever been.
“A year or two ago, you could have developed more scenarios that we were in a downturn that would go on for 10 to 12 years. But we’re seeing strong signs of a recovery underway that would have to reverse now. It’s much more unlikely that we’ll turn around again,” he added.
Architects, he says, are feeling much better. During the recession, roughly 60,000 positions were lost, which was roughly 30 percent of the workforce.
“We’ve got back 2 to 3 percent of that. It’s not back to where we were, but we’re they’re consistently seeing better conditions. More are hiring and plan to hire in the next three to six months, so at least things aren’t getting worse,” he added.