Reality Comes Home

If a home were designed based on the results of our 2009 Market Trends Report, it would be between 2,000 and 4,000 sq. ft., would include a multipurpose family/media room, home office, great room and outdoor living space.

The home would include energy-efficient HVAC equipment, windows and appliances, a tankless water heater, and added or upgraded insulation. Chances are the clients would cut back on square footage, finish details, landscaping and technology, and even some green products when the budget became tight.

The influence of news media combined with input from the designer/builder would drive the green elements of the home. The clients would have more interest than in prior years in efficient products, insulation, windows, home technology and HVAC equipment. The clients themselves would be between 40 and 49 years old and most likely have trouble securing project financing.

Someone they know will refer them to their design firm, some of whom were among the nearly 800 designers and builders that responded to our annual survey in January 2009. Their responses confirm that fewer homes are being designed and built, that revenue and profits are down and most design/build firms are not hiring.

The charts on the following pages reflect the results of our survey. Rather than review the information provided in the charts, Residential Design & Build lets the numbers speak for themselves and digs a little deeper into housing market trends with representatives of the American Institute of Architects, the National Association of Home Builders and FMI Corp.

The housing market still struggles, but recent weeks have been filled with an increasing number of positive news stories involving the economy in general, the housing market and even the banking world. Some economists, including Bernard Markstein, senior economist, NAHB, who spoke to RD&B in late March, believe the stories are indications we are at the bottom of the recession.

“We think we’re approaching the bottom for residential construction in terms of starts. In the next few months we’ll see some more down numbers, but housing should stabilize by the middle of the year. Then it’ll be a slow recovery in the second half of the year, including a slow improvement in starts,” Markstein says.

Kermit Baker, chief economist, AIA, also believes we’re at the bottom. “We feel we’re at the bottom in terms of production. We’re not likely to see a significant recovery in 2009. But once the economy begins to recover, we can begin to see a rebound in home building at the beginning of next year. We’ve already made some progress along those lines,” Baker says.

There is no doubt 2009 will be down from 2008, but Clark Ellis, principal at FMI Corp., feels there will not be another 30 percent drop in activity. “I think we’re at the bottom. It’s shallow and we’ll be here for a while. It could be a little worse this year [than 2008], but it’s not going to be a disaster. But it won’t be significantly better for a few years. It’ll also be a few years before we know what the sustainable level of production is,” Ellis says.

The stimulus effect

For custom housing market conditions to improve, entry-level market conditions must improve first. Unfortunately this means foreclosed homes must be taken off the market, which is beginning to happen in two ways. One way is the Making Home Affordable plan the Obama Administration launched in February that could halt up to nine million foreclosures by either refinancing or modifying troubled mortgages.

Another way is when bargain hunters snap up foreclosed homes for depressed values. The good side to this is inventory is moving, Markstein says, because there’s a need to clean up that inventory. “But it’s painful, because the bad side is too many appraisers are using foreclosures for comps and that doesn’t reflect reality.”