Glimpses of optimism are emerging in the construction and design industry, with some easing of interest rates and businesses reporting slight improvements in quarterly activity at the end of the year, compared with earlier periods in 2023, according to the Q1 2024 Houzz U.S. Renovation Barometer.
"Shorter backlogs, comparable to pre-pandemic levels, are likely fueling a rise in new project commitments as we enter the year," said Marine Sargsyan, Houzz staff economist. "Despite persisting labor shortages, industry professionals have adapted, sustaining operations and fulfilling project demands by refining project scope and upskilling their team members."
Backlogs across the construction and architectural and design services sectors are shorter than a year ago. In the construction sector, backlogs are currently at 6.7 weeks, which is 1.6 weeks shorter than the same period last year (8.3 weeks in Q1 2023), matching the level from five years ago (6.7 weeks in Q1 2019). In a similar trend, the architectural and design services sector has seen a marginal reduction in wait times to 5.2 weeks, slightly less than last year's 5.3 weeks, and just 0.5 weeks longer than the pre-pandemic period in Q1 2019, which stood at 4.7 weeks.
Q1 2024 Construction Sector Barometer
The overall outlook in the construction sector is favorable with both build-only and design-build remodelers anticipating growth in the first quarter. This follows a year and a half in which more businesses reported activity decline than growth. Build-only firms are much more optimistic than last quarter with an expected business indicator of 56 points in Q1 2024 (compared with 41 in Q4 2023). Design-Build remodelers also anticipate higher activity than the previous quarter (59 in Q1 2024 compared with 53 in Q4 2023).
The Expected Business Activity Indicator related to project inquiries and new committed projects jumped significantly to 57 for Q1 2024 (compared with 47 in Q4 2023), showing that more businesses expect quarter-over-quarter increases than quarter-over-quarter decreases. Expectations for project inquiries similarly grew to 57, compared with 46 in Q4 2023, and new committed projects reached 58, up 11 points relative to Q4 2023 expectations.
The Project Backlog Indicator is 6.7 weeks in the beginning of Q1, which is 1.6 weeks shorter than a year ago. This reflects a 5-year return to similar levels (Q1 2019).
The Recent Business Activity Indicator related to project inquiries and new committed projects reached 48 in Q4, up 4 points from Q3. This is driven by a 4-point increase in project inquiries in Q4, relative to the previous quarter and a 6-point increase in new committed projects to 50 in Q4.
Q1 2024 Architectural and Design Services Sector Barometer
The positive sentiment among the architectural and design services sector is stronger in Q1 2024 (at 66) than the previous quarter (61) as more firms expect business activity to improve than those expecting slowdowns. The increase in expectations follows three consecutive quarters of growth in business activity.
The Expected Business Activity Indicator related to project inquiries and new committed projects increased to 66 for Q1 2024 (up 5 points from Q4 2023). The increase in the overall indicator is driven by a 5-point increase in expectations for both project inquiries and new committed projects to 66, each in Q1 2024.
The Project Backlog Indicator is 5.2 weeks in the beginning of Q1. Backlogs are down slightly by 0.1 weeks compared to last year (5.3 weeks), and only 0.5 weeks longer than they were five years ago in Q1 2019 (4.7 weeks).
The Recent Business Activity Indicator related to project inquiries and new committed projects increased to 54 in Q4 (compared with 52 in Q3). This increase is attributed to a rise in project inquiries to 51 and new committed projects to 57, up 1 and 2 points, respectively, from Q3. Additionally, with the indicator at 54 for both architects and interior designers, it indicates more businesses in these groups saw improvements in activity compared to those experiencing slowdowns.
Regional Backlogs
For the construction sector, the New England division (including Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) has the longest backlog (11.7 weeks) driven by wait times reported by build-only and design-build firms in the region (15.6 and 7.8 weeks, respectively). Businesses in the Mountain division (including Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming) report backlogs of 3.5 weeks before they can begin a new project, the shortest wait time reported by construction firms among the nine Census divisions. Compared with the same quarter one year ago, backlogs for the construction sector are shorter across seven of nine Census divisions (across all but the East South Central and the West South Central divisions).
Backlogs also vary across all regional divisions among businesses in the architectural and design services sector. Businesses in the Middle Atlantic division (New York, New Jersey and Pennsylvania) reported backlogs of 8.1 weeks, while the West South Central division (including Arkansas, Louisiana, Oklahoma and Texas) showed much shorter backlogs at 3.9 weeks. Backlogs reported by architects in the Middle Atlantic division (9.6 weeks) are the driving force for long wait times, whereas the wait to begin a new project with an interior designer in that area is only 5.5 weeks. Compared with the same quarter one year ago, backlogs for the architectural and design services sector are shorter across seven of the nine Census divisions (across all but the East North Central and West North Central divisions).
