Chief Economist Offers Good News for Housing Market
April 21, 2009
Kermit Baker, chief economist for the American Institute of Architects
(AIA), said the residential construction industry is "approaching
the bottom." These comments were made during a recent webinar
in which leading economists offered insights concerning the current
economy as it relates to the construction market (CLICK
HERE for related article). Baker said the industry is starting
to see some favorable signs emerging. This includes the fact that
for younger households priced out of the housing market previously,
housing has suddenly become very affordable.
In addition, low mortgage rates are helping increase home sales
"Third, home sales are bouncing around, and this is usually
the first sign that we're nearing bottom," said Baker. "Finally,
the markets that were the first to see the downturn-- overbuilt
markets in California, Nevada, Arizona and Florida--are starting
to see more sales activity as foreclosures have caused a crisis
to adjust rapidly and helped those markets rebound."
According to Baker, once a housing downturn ends we typically see
a sharp recovery in residential construction activity. "Typically
we see production increase somewhere in the 15-30 percent range
in the first quarter recovery and even stronger growth in the second
quarter," said Baker. "I think the message is the industry
has a history of turning very quickly and so therefore it's something
the industry needs to keep its eyes on as we approach what looks
to be the next upturn."
Baker also talked some about remodeling market trends. He said
commerce department figures showed homeowners' spending on home
improvements, such as kitchen and bathroom upgrades, in 2008 were
off about 10 percent compared to 2007.
"But we are beginning to see some positives that will pull
us out of the remodeling downturn in the not-too-distant future.
The first is that falling house prices and falling financing costs
are producing record affordability helping to stabilize home sales,
which is encouraging more re-financing activity," said Baker.
He also said homeowners are getting better contract bids since
contractors are looking for work more than ever before. "Contractors
are more aggressively looking for work so it's a favorable environment
to undertake these projects," he added.
He also pointed out that there are certain federal initiatives
designed to provide direct funding to programs that generate more
remodeling activity related to energy performance. For example,
this could include the purchase of energy-efficient windows.
Overall, Baker's outlook was optimistic for the future.
"When the housing market recovers from this down turn we should
start to see some good solid numbers in the building industry,"
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