Residential Rebound is in Play Despite Market Drama

Thanks largely to a global health emergency, drama reigns in 2020. But could ongoing market drama mean a residential rebound? This situation prevails in the architecture, engineering, and construction (AEC) fields, too, although construction has been pummeled less than, say, in-person service fields such as hospitality and travel or even education. Take, for example, projected nonresidential spending in 2020 and 2021:

These table data come in the July 2020 Consensus Construction Forecast by the American Institute of Architects, written by AIA chief economist Kermit Baker.

Baker also says, “With so much of the economy in slowdown or shutdown mode, businesses and organizations are hesitant to invest in modernized or new facilities. As a result, construction spending ended its almost decade-long expansion this past spring (2020), and it appears that it will remain in recession throughout 2020 and well into 2021.”

But that’s the bleak nonresidential outlook. What do experts have to say about residential spending?

Residential Spending Projections for 2020 and Beyond

As the industry gold standard, the Architectural Billings Index (ABI) offers a trove of data on building and architecture trends, particularly in commercial or nonresidential realms. But they do inject some commentary on residential spending as well. We found some positive takeaways from the latest ABI figures available at the time of this writing (early October 2020).

ABI positives—inquiries up; multifamily residential is showing growth

The August 2020 ABI report indicates that “Residential construction and real estate . . . was generally strong across the country, with strong home sales reported in the Boston, Richmond (Virginia), Kansas City, and Dallas districts, and strengthening residential construction activity noted in the San Francisco district.”

Also, as a firm that specializes in both residential and commercial/nonresidential architecture and design, we consider this a good sign, from the August report: “firms with a multifamily residential specialization continued to report stabilizing conditions, and almost saw overall billings growth in August for the first time in seven months.”

It will be interesting to see if September and later 2020 reports continue to reflect a residential rebound for architecture.

The half-way positives: Backslides reverse and some improvements occur

In addition, the pace of the backslide reversed somewhat. May 2020 billings yielded a 32.0 score, but June, July, and August saw 40.0. “Inquiries into new projects grew in August for the first time since February, and the value of new design contracts increased to a score of 46.0, indicating that fewer firms reported a decline this month, despite the fact that they remained negative overall.” ABI negatives: Commercial/industrial still lags

The positives must always be leavened by the negatives, however. These less-than-desired aspects pertain to how “the value of new design contracts still lags behind” because of client price-shopping and that “Firm backlogs also began to tick back up. . . .” (July 2020 ABI)

In reported August 2020 billings, “. . . . conditions remained very weak at firms with a commercial/industrial specialization, and have stabilized modestly at firms with an institutional specialization.”

If the Midwest continues accelerating or staying high in terms of coronavirus infection rates, will the AEC markets shrink again?

As of October 5, 2020, a New York Times interactive map of coronavirus cases indicates several Midwestern, Western, and Southern states among the “where new cases are higher and staying high,” including Missouri, Illinois, Wisconsin, Montana, Utah, Kentucky, Alabama, and Texas. Illinois and Indiana also have the dubious distinction, with several other states, of being “where new deaths are increasing” as of Oct. 5.

The simple answer about coronavirus’ continuing impact on AEC? No one knows for sure.

What We’ve Seen for Inquiries & Spending: More Residential Rebound

Both anecdotally and data-wise, we can attest to the “restart” motives of our clients in the St. Louis area. For instance, in our own architectural practice, we have seen a decided uptick in residential inquiries and spending, bearing out the national trend of a significant residential rebound. Both levels float above those occurring in our work in 2019 or 2018. Inquiries include multiple residential decks, garage additions, home office additions, bathroom remodels, carports, and even some multifamily projects. Spending has extended to the installation of residential decks

Decks and backyard.

from January through August 2020 and remodels as well as smaller projects including pergolas and treehouses.

We wrote about one example earlier in 2020 and, thus, earlier in the pandemic (February). We completed a long-standing project to convert a duplex into a single-family residence in the Tower Grove South area of St. Louis, which we detailed here on the REspace blog.

So, in our minds, homeowners are pivoting to the much-talked-about new normal of long(er) hours spent insularly, as well as the prospect that this autumn and winter may reflect exactly what infectious disease expert Dr. Anthony Fauci has cautioned, as a period needing us to “hunker down” as a society during a concurrent flu season and coronavirus pandemic. That is, we were indoors and probably will continue to be indoors with family (including pets and children) and in search of ways to stay healthy/active, educated, and entertained while, if we have that luxury, working from home.

Nationwide Trends in the Residential Sector

These grim or changing virus surveillance data notwithstanding, several possibly emergent trends owing to COVID-19 have been discussed by commentators, realtors, and various experts alike.

• Ditching open-concept: More “walls, doors, and overall privacy” are trending (Zillow). In a Harris Poll survey for Zillow in May 2020, some 27% (of 2,065 adults) said they would consider moving to a home with more room. August 2020 ABI residential billings and strong home sales in many locales have borne this hypothesis out. So far.
• Adding or shutting off rooms: The prevalence of mud rooms off garages, barn doors for shutting off and making rooms multipurpose, double owner suites, and en-suite guest bathrooms are rising—in actuality and predictions, too—and all also illustrate leaving behind open concepts for multipurpose, private, or separate-room options.
• Building lock-off units for working from home or other arrangements: These units are attached to primary dwellings, either for home office space or to offer a separate living/working space for an adult child or other family or guests).

A music studio home office for the backyard, by Studio Shed.

• Backyard office spaces such as sheds are booming, too.
• Home inquiries—and sales—are hot! The residential rebound could be here to stay. Mid-year, Zillow saw a 73% increase (May 2019 versus May 2020) in views for listing pages on new construction. In mid-September, that trend of home sales persisted. Forbes characterized the fall real estate market as “abnormally hot,” quoting a senior economist at Zillow: “Home sales are currently stronger than they were pre-pandemic and show no signs of slowing.” This upswing owes to “[the rise in] home values … and [the fall in] mortgage rates.”

• Revamping HVAC systems in existing homes: For those who can afford it, higher-end HVAC traditionally used in offices and hotels—and in Asia; but now reportedly being retrofit in U.S. commercial buildings, including schools and public buildings—may become a thing in residential spaces. Fast Company points to some higher-end HVAC systems with HEPA filters and even UV light sterilization in the ducts. Fanning Howey (an integrated architecture, interiors, and engineering firm) suggests, in the context of schools, raising the quality of the filters used, (to highly efficient bag filters of MERV-13 or higher), air purification systems, and robust humidity controls.
• Making “smaller” moves: Some homeowners are adding touchless faucets and fixtures, bigger pantries or bathrooms, bathroom bidets, and copper or brass doorknobs and fixtures. Zillow design expert Kerrie Kelly also predicts self-cleaning toilets will gain popularity, and suggests quartz countertops for their supposed antimicrobial properties.

Whatever changes are in progress or forthcoming, the AEC market almost surely promises to stay dynamic.

Conclusion

Tools of the trade.

No one can say with absolute certainty what is going to happen in the final quarter of 2020 and into 2021, whether in the AEC and design fields or any other. The residential rebound appears to be in motion. For us, we’ve chosen to focus on what we have always delivered to our clients—namely, high-quality personalized service that can be virtually accomplished in many facets. Our range of residential (and commercial) services extends to zoning and building code analysis, construction administration, bidding, and even 3-D modeling. So, if you’re planning a new build, addition, or remodel/restoration—whether prompted by coronavirus or simply realizing a dream —we’d love to discuss the trends and data with you to help you articulate and visualize your plan. We can meet you wherever you are virtually, so contact us here today. And please stay well, wherever you are!