It's been a little over a year since the housing market hit the skids. The U.S. Census Bureau marked November 2005 as the beginning of the slide, and throughout 2006 new-home sales steadily lost ground, dropping about 20 percent nationwide. Toward the end of 2006, inventories were up an alarming 35 percent from the previous year as short-term investors rushed for the exits. Although interest rates have plateaued and the economy remains healthy, we've yet to see whether the landing will be hard, soft, or somewhere in between.
It took the big national builders a little too long to realize the party was winding down. Panic-stricken, they are putting on the brakes, dumping land, postponing planned subdivisions, and offering buyer incentives. Architects have cause for concern too. Falling existing-home values have taken consumers hostage psychologically as they wait for the market to bottom out. And it means less equity for owners who want to trade up to their dream home.
But there is an upside to this inevitable downdraft. Thankfully, the real estate market has rid itself of house-flippers seeking a quick profit. Gone, too, is the frenzy that turned buying and selling into a competitive sport—and the irritating subject of every dinner-party conversation. It's a relief for middle-income Americans who are being priced out of their neighborhoods. And a saturated market means the cost of building materials will likely come down. Frankly, some calm is welcome.
“It's a strange downturn,” says Chris Lessard, AIA, founding principal and CEO of Lessard Group, Vienna, Va. “Everyone is so calm. The reason is that the demographics are overwhelmingly in favor of housing demand, and the numbers on job creation are promising. The price is the problem. We know the market is there, but we have to adjust our pricing.”
True, this housing downturn differs from those of the early 1980s and '90s in that it doesn't coincide with a recession. As a result, custom-home architects are reporting only a slight decrease in leads. But while the softening housing market doesn't have most architects scrambling for work, there's been a palpable shift in thinking, particularly among production and multifamily practices.
inside the box For BSB Design, the housing downturn is a two-part opportunity. National design director Ed Binkley, AIA, who's based in the firm's Orlando, Fla., office, says some of the big national builders in Orlando have stopped projects for which they'd already had site plans approved. They're selling off those properties and sitting tight. But large local builders are snapping them up, and that's created a whole new market for fast-tracked design. “The local builders don't have anything designed that fits these properties,” Binkley explains. “There's been this hurry-up process to get something designed and into the system quickly. That's happening in our offices across the country.” BSB is in the midst of charrettes, sending out architects for several days at a time to quickly design handfuls of single-family spec homes. These builders are girding for an uptick in activity toward the end of 2007, hoping that strong job and population growth will have soaked up the surplus inventory by then.
The other good news is that, with the slam-dunk days on the wane, BSB finally has time to address some systemic housing problems that were ignored during the run-up. “We're in that time frame now where we have a chance to stop to look at how we'll address housing two to five years from now,” Binkley says. “To me, it's almost a welcome relief.” With the median U.S. home price hovering above $200,000, at the top of BSB's list is how to make workforce housing feel as special as the million-dollar homes. “We've got this theory that we've been thinking outside the box; now we need to think inside the box,” Binkley says. For example, the firm is doing research and development on various house types starting at 16 feet wide and increasing in eight-foot increments. It's also working on three-story townhouses with a ground-floor garage and second and third floors that are interchangeable, depending on the views and communities. “We've gotten into this thinking that a bigger house is better, because the cost per square foot to build it goes down,” he continues. “Now it's about being respectful of the way we live and use the house, which saves materials and waste.”
Inevitably, this little trough is also giving architects a chance to push the builder boundaries on sustainable design. Consumers are clamoring for it now, but builders worry about how going green will affect the bottom line. “There have been so many misconceptions about what it means to the price of housing,” Binkley says. “We're trying to take baby steps on things like carpets and paints and HVAC systems—things that fall in line with normal practice—and before they realize it, they have a green house. As builders begin to understand they can do this, they're buying into it, but it takes a real education on our end.”
Lessard Group has become more proactive during the lull too. Until recently, builders were asking for big houses, knowing they could get top dollar per square foot. Now, in response to stratospheric land and construction costs, they're readjusting to meet a price point people can afford. In response, architects have gone back to the drawing board —reengineering structural framing to reduce the use of steel and concrete on condos, creating more disciplined floor plans, and developing pro formas for builders based on these ideas. “We're coming to them with solutions,” Lessard says. With the growing demand for apartment buildings, some of his clients are renegotiating land contracts to make the numbers work for rental properties. However, because condos are a more lucrative project type for builders, Lessard is experimenting with cost-saving tricks like wood construction and pushing buildings farther out of the ground to avoid the expense of constructing underground parking. He believes the market will be better off for some of these emerging changes. “In freewheeling times we tended to design and then value-engineer later,” he says. “Now we're picking the structural system first and organizing around it. When you're not disciplined, you're not doing anyone a favor.”
On the West Coast, Seattle has one of the strongest housing markets in the United States, but even it's starting to lose steam as inventories of unsold homes rise. At the end of 2006, The Wall Street Journal reported that the median home price in Seattle was up 9.4 percent from a year earlier—the first time in two years that increases haven't reached double digits. Still, Bellevue, Wash.-based Milbrandt Architects hasn't felt so much as a pinch. That's partly because the firm, whose clients include Centex Homes and Polygon Northwest Co., takes on a diversified blend of single-family, rental, and condo projects. “The statistical information we've heard recently is that the price increases are slowing down, but we haven't had any backing off of price appreciation here at all,” says principal Leonard Milbrandt, AIA.