Architecture Leading Indicator Perks Up: GROWTH!

This month's AIA Architectural Billing Index, which measures month-over-month billings as reported by architecture firms, indicated an uptick in billings for the first time in two years.  The black line in the graph below represents the billings ($$) indicator.

Chart from the AIA

The ABI is generally considered to be a leading indicator of construction activity, which is clearly a major component of the economy.  One month clearly does not make a trend, but apparently the industry is in better shape than since early 2008.

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What do you think of Entrepreneurs?

If you are an entrepreneur, a small or medium-size business owner, or believe that entrepreneurship must be fostered for the betterment of all, consider the Kauffman Foundation "Entrepreneur's Pledge." Join the list to stay informed of important issues affecting business creation.



The text of the pledge is as follows:
"I am an entrepreneur.

I am following a dream, pursuing an opportunity, taking charge of my own destiny.

I am bringing something of value to society, making a job for myself and for others, and creating wealth that benefits my family, my community, my country, my world.

I am one of a movement of millions of entrepreneurs and innovators who made America great, and who will continue to keep our economy going ... and growing.

I am what I am because many people have helped me along on this journey.

Therefore:

I will tell my story, sharing my successes and failures, so that others taking the entrepreneurial path can learn.

I will strive to mentor an aspiring entrepreneur.

I will make my voice heard by those who make policy decisions that affect me and my business.
I will appreciate and celebrate my accomplishments, and the accomplishments of all my fellow entrepreneurs.

I will give back to the society that helped me to be successful.

I will Build a Stronger America."

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[1016]: Architecture + Real Estate [1016] Architecture is ready. Are you?Let us know: Think about it, comment below, then:Check out [1016] elsewhere on the web: Facebook, eHow, SlideShare

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Should you Remodel or "Move Up"?

According to the Wall Street Journal and the Joint Center for Housing Studies at Harvard University, when pondering this question in 2010, even the majority of homeowners who are not "underwater" on their mortgages are feeling more apt to renovate their existing digs than sell and move to a different home.

This "Do More with Less" theme could well be the theme of 2010 and a nascent economic recovery. In that vein, we wanted to share this video showing how a little space combined with a lot of imagination can result in more than you expect.



The Wall Street Journal article also mentioned a "psychology return on investment" which we are proud to say we covered in one of our previous posts on Getting the Most Out of Home Improvements as "emotional return." A level-headed analysis of costs vs. value should definitely include this non-monetary return on improvements intended to be enjoyed over many years.

Read the full Wall Street Journal Article here.

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How to Get the Most Return on Home Improvements

As architects, we recently meet more and more homeowners who are interested in renovating or adding on to an existing home rather than seeking to sell and move or to build new.


Their questions are plenty, but usually revolve around one central issue:  How to I get the most out of my home improvement dollar?


Here are some general tips to consider when deciding whether or not to undertake your project:

1. Assess how long you want to remain in the home.  Obviously, if you are thinking of staying put to enjoy the fruits of your improvements for ten years, you will be able to make different decisions than someone interested in moving on from a fixer-upper after only one or two year.  Think of this time as "emotional" or "utilization return" on your investment.  This factor will also affect the life-cycle return of energy efficient improvements such as new windows or insulation.
2. Refer to the latest numbers.  Check out this Cost vs. Value 2009-2010 resource from Renovation Magazine to see how much of your money you can reasonable expect to recoup when you sell the house.  There is data for various regions and metro areas across the country, so you should be able to get a good idea of a general range for typical improvements such as adding an attic bedroom, or renovating a master bathroom.  The difference between cost and value is the true price tag of your improvement.
3. Consider doing some of the work yourself.  Labor can make up anywhere from 15% - 30% (or more) of the cost of a renovation job, so tackling some of the simpler items can make an impact on the overall budget.  Beware, however, of taking on more than you can handle safely and economically.  Frustrations, complications, and delays are always just below the surface on renovation projects.
4. Remain sober about the economic benefit of certain changes.  If you check the Cost vs. Value chart from number two above, you realize gone are the days of renovating a bathroom or kitchen and selling your house for a 20% gain in just over a year.  Is that "true price tag"worth spending to get your emotional or utilization return?
5. Ask for professional advice before undertaking a big project.  As an architect and real estate agent, I am obviously a big proponent of planning and knowing the realities of your real estate market before making decisions regarding home improvements.  Most professionals will be glad to give an quick opinion or consult without cost or obligation.  If you like what they have to say, consider engaging them to help you with the rest of your project.  Find a professional for your job at ServiceMagic.com.

Overall, being realistic with your goals, expectations, budget, and abilities are all critical aspects to a home improvement.  Assembling a team of professional advisers may cost a little more on the front end, but could save big bucks by steering you clear of costly mistakes.

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About Andrew Wilson

As a licensed architect, co-founder of [1016] Architecture in New York and Chicago, and a Licensed Real Estate Salesperson and Realtor with the New York office of RealEstate.com, I bring a unique perspective to the real estate purchase process and see often opportunities where others may not.

I have dedicated my professional life to learning as much as possible about the real estate market and the built environment. I am committed to sharing that knowledge with my clients through exceptional service.


[1016]: Architecture + Real Estate
[1016] Architecture is ready. Are you?
Let us know: Think about it, comment below, then:
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Looking for Chicago or Long Island Real Estate?
To search Chicago MLS like an agent: Click here
To search Long Island MLS like an agent: Click here
(powered by ListingBook)

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[1016] Architecture in Urban Land Magazine

[1016] Principal Andrew Wilson, AIA, LEED AP, was quoted in the Regional Spotlight (Midwest) Section of the Jan/Feb issue of Urban Land Magazine. Urban Land, the main publication for the Urban Land Institute, reaches over 30,000 real estate, development, and design professionals and is considered a leading authority on market trends and conditions.

Check out the article here. (2MB .pdf)

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R.I.P. McMansion: Enter a Believable Concept Home

Sure, something called a McMansion probably wasn't going to last forever, but a lot of them were built. McMansions resulted from the excesses of a real estate boom obsessed with resale and "moving up" the housing ladder. No one asked about energy bills or seemed too concerned about how much they really needed that third car in the garage. They assumed they could sell to someone else in a few years for more money.

Those times are certainly over, and perhaps with them, McMansions.

The Home for a New Economy was the 2010 Show House at the International Home Builders Show in Las Vegas. Designed by fellow Notre Dame Architecture graduate Marianne Cusato, among a team of important consultants, the 4 BR / 3.1 BA home is billed as a direct response to current economic, environmental, and demographic concerns.

The house is affordable ($85/sq. ft. construction), livable (no wasted space, no extraneous features), sustainable (green materials, efficient mechanical systems), and adaptable (rooms can be re-purposed as the household changes).

Check out this video on WSJ.com


After taking a virtual tour of the home here (sign-in required), it is clear to the author that this home is a great start as a prototype to show people how they can live just as well in 1,700 square feet as they can in 3,500. While this home is attractive and highly functional, it is important to note that this is not the only physical form a small, usable house can take; well-designed condos, apartments, and other multi-family residential solutions can succeed in this regard, as well.

All of the problems that the prototype addresses are also greatly affected by its ultimate location. As Inside the Brackets previously wrote, we believe strongly in the affordability, livability, sustainability, and adaptability of existing cities as an alternative to new suburban growth.

Would you live in this house? Do you think you could live there for the rest of your life? Let us know what you think.

More about the Home for the New Economy:
Main Site: Home Page of the Home for the New Economy
Builder Magazine Article: Show Home 2010 Tour
CyberHomes Blog Article: Concept Home for the Times

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When it Comes to Housing Bottom, Who to Believe?

Picking the bottom of the market may be impossible, but perhaps the conflicting views of 2010 presented in the WSJ.com videos below mean opportunity is out there for intrepid buyers.

This video says foreclosure activity will see a second and third wave in 2010. The first wave was started by poor lending practices, which help create the now-burst bubble. The second wave of foreclosures will come from unemployment and the third wave from the boom-vintage adjustable rate mortgages resetting on underwater homes. Yikes.




All that said, if you still have a job, in most places of the country, housing is affordable relative to historic earning power. This is a powerful, but rarely emphasized metric that Inside the Brackets has written about before in our Moody's Crystal Ball.

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Underwater Homeowners Get the Guilt Trip?

Would you walk away from your mortgage if you knew you owed more than your home was worth? What if you owed significantly more? Turns out a lot of us do.

FEMA recommended homeowner attire?

As New York Times Magazine contributing writer Roger Lowenstein points out, businesses often implore the "strategic default" as a means to minimize losses and bring forward potential returns. Bankruptcy, renegotiation, and contract termination are all cards to be played if free-market circumstances call.

The idea of an individual walking away from a mortgage, though, seems to carry moral implications not emphasized in the high-stakes world of big business deals. Homeowners are being implored by CEOs and politicians to "do the right thing" and honor their contracts even though it could be against the individual's best interests.

Certainly there are economic consequences for an individual defaulting on an underwater mortgage (e.g. foreclosure, personal bankruptcy or damaged credit); so if those consequences are fairly suffered, why the moral argument?

Inside the Brackets wonders if its readers think it's hypocritical for leaders to expect individuals to act a certain way while they run their businesses another. Further, speaking strictly in the long term, is it possible that staying in an underwater mortgage hurts not only the owner, but other homeowners as well?

Let us know what you think. Comment below.

Full NYT Magazine article text: here.

Interesting interactive graph of negative equity mortgages on WSJ.com: here.
Photo credit: http://www.flickr.com/photos/mister_tee/ / CC BY 2.0

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Wrightwood Crossing: Construction Progress

Wrightwood Crossing construction progress continues. First floor concrete plank is set, foundation is backfilled, and columns shown will support the second floor. Masons have begun laying the stone base which will eventually circle the whole building. Nothing too glamorous yet, but any construction activity in this environment is good news.

Speaking of news: the project was recently featured by GreenBeanChicago.com, a leading website featuring green and sustainable architecture in the Chicago area. Click the link to the full article, "Wrightwood Crossing Adds a Green Touch to Lincoln Park," by Shafaq Choudry.

Caution tape, not a crime scene.

View from Northwest corner of front property line.

Rendering of final building. (Image by Studio 2a)

Wrightwood Crossing, a [1016] Architecture design, is LEED Registered with the certification goal of Platinum. The first group of the 19 overall units are scheduled for delivery in Spring 2010.

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Remodeling or Building? The Time May Be Now.

Owners,

It might not be a newsflash, but the construction industry is slow, and the Wall Street Journal points out that you might be able to get more for your renovation or construction dollar now.

The article includes some good tips for saving money on your renovation or build. While most of these ideas will save you money in any market, the current climate may yield especially low prices and high values:

1. Get multiple bids
2. Don't select on price alone, check with the Better Business Bureau and references, and be wary of bids that are "too low."
3. Confirm that the builder has experience with your project type, i.e. compared to new construction, renovation is a different animal
4. Ask for a discount, but be prepared for a "no"
5. Apply for available tax credits, especially for energy efficient improvements

Be aware that the biggest hurdle your project will face in the current economy is financing. Determining a realistic budget upfront is paramount.

Despite the slowdown, the best designers and builders may not be discounting prices much or at all. This does not mean you are not getting a value from them at this time; think: exceptional quality and attention. During the boom, a firm might have tackled a dozen (or more) jobs at once, but now they may only have a couple. This means, when you call or ask questions, you will be heard.

If you are unsure of the steps you need to take, the best place to start might be to speak to an architect or designer. Their network and connections should help you navigate your project successfully.

For more information on available Energy Efficient Tax Credits: click here.

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Andrew C. Wilson is an architect licensed in Illinois and New York, a LEED accredited professional, and principal of [1016] Architecture in Chicago.

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Chicago Home Prices: A Moody Crystal Ball

Want to look into the future of home prices in Chicago? From Forbes.com

"Moody's Economy.com provided Forbes with a housing price forecast for the country's 40 largest metropolitan statistical areas (or metros)--geographic entities defined by the U.S. Office of Management and Budget for use in collecting statistics. The forecast predicts the percent change in home prices over one year, three years and five years, using data from the S&P/Case-Shiller Home Price Index. In the MSAs for which Case Schiller does not publish numbers, Moody's used a weighted average of metropolitan divisions within those areas.

Chicago, IL

Percentage Change:

1 Year, 2009: -16.31%

3 Year, 2009-2012: 1.49%

5 Year, 2009-2014: 14%"

Full Forbes story: click here.

So, on a metro area level, this calculation estimates that it will take five years for median home prices to get back to January 1, 2009 levels. Doesn't really sound exciting, but this is a macro indicator. Obviously, each property needs to be considered independently within this context. If you are in the market, your buyer's agent should be able to help you determine this. Check out this article with our Top Five Tips for selecting a buyers agent, if you aren't working with one already.

Price vs. Value
More importantly than price, however, is value. In other words: is any given purchase a good deal? or: Is the Chicago market still overheated?

Inside the Brackets believes the best way to understand housing market value is relative to median income (HP/MI ratio). This ratio tracks the comparison of housing prices in a given area to how much people typically earn there. Each area has a historical norm, and some are more stable than others. Especially when compared with other large metro areas, Chicago's historic ratio has been relatively consistent, with little volatility.

According to the New York Times, Chicago's historic norm for housing costs around 2.0 times median income. As of April 2009, this ratio sat at 2.5 according to this Interactive graph. The exact numbers are of relatively minor importance, the true meaning of the stat is the ratio.

What does this mean?
With an HP/MI at 2.5 in April, this meant housing prices would have to fall about 25% to get back to historic value levels (assuming negliegable income growth). If prices "only" fall the Moody's projected 16% this year, it means housing (in aggregate) still will not be as affordable as it usually is in Chicago.

So, even though Moody's projects a market price bottom in the next 12-24 months, value indicators like HP/MI may still indicate that prices are a little high historically. This only serves to reinforce the importance of evaluating the individual property and opportunity it presents within the market. In other words, even though prices are down, you can't just pick a house at random and get a great deal (a/k/a value).

What can you do?
During times like this, people who make careful purchases will come out ahead in the long-term. People who make careful purchases, as well as careful improvements to a property, will come out well ahead.

1. Get a buyer's agent who knows your market to help you determine a home's real value.
   
2. Invest wisely in properties where you can add value via appropriate improvements.
3. Keep in mind that even though it's a buyers' market, it's still not like shooting fish in a barrel.
   

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Architecture and Real Estate

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AIA: Inquiries are up, but not translating into work

AIA’s Architecture Billings Index (ABI), a/k/a "Work on the Boards," bounced back in July, returning to a level seen in the three months prior to June, 43.1. Since a score of 50.0 indicates a neutral month-to-month change, this score still represents a decline, but a modest one compared to June.

Inquiries continued their positive trend, with a score of 50.3. This is the fifth month in a row where firms reported an increase in month-to-month inquiries for new work. Clearly, though, a significant disconnect is occurring between inquiries and the more important billings.

AIA Chief Economist Kermit Baker explains it this way:
"We are still seing a lot of inquiries out that that in all likelihood are not going to generate billings at firms because there is so much competition in the marketplace."

For more in depth analysis, check out this video with Kermit Baker.

Forward looking clients should get their ducks in a row before they miss an advantage of potentially decreased design and construction prices.

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Andy
[1016] Architecture Inc. is ready. Are you?
Improving within Authentic Environments.
Inside the Brackets

AIA: Inquiries up again...

The AIA Architectural Billings Index (ABI) report continues to show an increase for inquiries at the surveyed firms. While a rating of 50 means inquiries were level from the previous month, this month a 57 was posted.

Billings, certainly the more immediately important measure, was down slightly at 43.

These numbers correlate with the "It's getting worse at a slower pace" mantra on cable news. Now we get to argue about which letter-shape the bottom will be: U-, W-, or my favorite, V-shaped.

Two interesting additions to the information that the AIA tracks and presents are 1) video address from AIA's Chief economist Kermit Baker (click photo below for full video), and 2) information regarding stimulus funded projects.

I guess Kermit's face gives away how he feels about the numbers overall.

What Stimulus?
12% of firms say they have projects with stimulus spending on the boards and another 22% say they have had inquiries from such projects. Sounds good, but Kermit lets us know that these firms also report these projects will only account for about 5% of revenue, and that most of these firms are "large firms." Inside the Brackets hopes smaller firms will have access to the stimulus projects soon, as surely they will have a greater impact on their bottom lines.

Clearly this fellow firm owner agrees:

We’ve had two rounds of layoffs since September and probably will lose another group in the next week or so. Work has dried up because our clients are unable to obtain financing for good projects. Collection of receivables is terrible. The so-called “stimulus” would appear to have little, if any, positive impact on a firm like ours.
—34-person firm in the South, commercial/industrial specialization

Click here for full AIA article.

So What?
So, the April ABI is positive, but a fairly narrow slice of broader economic trends. Therefore, we're happy to point out that Inside the Brackets optimism was bolstered today by the Conference Board's announcement that their Leading Economic Index (LEI) was up with a 1% gain, its largest increase in nearly four years.

A one percent increase doesn't sound like much, but the LEI aggregates ten different leading economic indicators to give a "big picture" look at our country's prospects, and given the size of our economy, the moves are usually small, and changing directions takes a lot of effort.

Check out the press release here.