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July 10th, 2012

Architects say ‘we’ve turned the corner’



iStock_Blue PrintsAfter the housing bubble burst and the recession pushed Americans to become more frugal, most housing experts assumed the days of McMansions were over.

But recently, some surprising news came out of the American Institute of Architects’ (AIA) Home Design Trends Survey for the first quarter of 2012. The survey found that: 8 percent of surveyed architects said they are building larger homes than they were last year.

“This is significant because it represents a reversal of a trend that has been going on for six years,” says Kermit Baker, chief economist for AIA in Boston.

Baker says that home sizes are typically affected by economic cycles and increase when the economy is robust. He says home sizes shrunk dramatically during the past economic cycle, partly because the cycle itself was more dramatic, but also because there was a general sense that homes were getting too big, especially upscale homes.

“The concern for architects and others was that we were not likely to see a rebound at all and that people were going to stop spending money on houses,” says Baker. “Now we think we’ve turned the corner and expect to see further improvement in every sector of the housing market.”

Richard Green, director of the University of Southern California Lusk Center for Real Estate, says he was stunned at the AIA survey’s report on home sizes.

“Developers are still not building a lot of middle market new homes, so this may be a reflection of the strength of the high end market,” says Green.

Architects: All sectors improving

AIA’s survey showed improvements in all housing sectors in the first quarter of 2012 compared to the first quarter of 2011. The architects were asked if their market was “weak, stable or improving.”

In the first-time buyer/affordable home market, -7 percent of architects said their markets were improving, compared to -22.2 percent reported last year. In the move-up home market, -3 percent of architects said their markets were improving, compared to -15.5 percent last year. In the custom/luxury home market, the numbers went from -18.9 percent in 2011 to -2 percent in 2012. (The numbers are generated by subtracting the percent of respondents reporting weakening conditions from those reporting improved market conditions.)

“The new home building numbers have gone from pretty bad to not-so-bad to almost stable,” says Baker.

Other numbers also bode well for housing

New-home sales rose 19.8 percent in May 2012 compared to May 2011, according to the Census Bureau. Pending home sales rose 13.3 percent in May 2012 compared to the year before, according to the National Association of Realtors, who also reported a year-over-year increase of 9.6 percent in existing-home sales.

“Even before [the recent] positive housing numbers I’ve felt better about the real estate market recently than I have felt in four or five years,” says Green. “What’s been surprising to me in the past year is that inventory has dropped so dramatically, particularly in some of the most distressed markets. Part of the reason for this is that investors have been buying property at low prices and renting them at higher rents.”

Green says he pays the most attention to inventory and rents as a predictor of housing market trends.

“The limited supply of homes for sale predicts rising prices,” says Green. “When rents are rising as they are now, then the financial decision of renting or buying tilts toward buying. That will place demand pressure on the housing market in addition to the supply pressure we’re already seeing.”

Green says the housing market, particularly at the low end of prices, is doing much better than he expected.

“Another positive trend is that prices are down by less than they were,” says Green. “That’s another sign of recovery. I expect we’ll see positive year-over-year numbers on prices by September.”

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One Response to “Architects say ‘we’ve turned the corner’”

  1. Jason Says: July 13th, 2012 at 1:08 pm

    We’re just happy to be able to start building more homes in general, but I’m not really surprised by that figure for larger homes. Even though the economy is improving slowly, it probably improves quicker for those who weren’t hurting as badly. With the prices of home now, even building new ones in some areas, and the reduced mortgage rates, it seems to fit.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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