AIA 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 as well.

"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," he said.

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