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Tag Archives: Michael J. Berens

Signs point to improving business conditions for designers

Michael J. BerensThursday, May 10, 2018

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Signs point to improving business conditions for designers

After several months of declining growth, the interior design industry showed signs of regaining momentum in the latter part of the first quarter.

Both residential and commercial sectors have experienced increased activity in recent months. The upward trend has boosted designers’ expectations that demand will continue to grow in the months ahead.

Presently, the outlook for design firms remains very positive, according to the American Society of Interior Designers. Its latest Interior Design Billings Index (IDBI), for March 2018, rose 2 points for the month, to 58.5, its highest level since June of last year.

Even though the business inquiries index dropped somewhat from February, designers expressed increased optimism about their prospects in the months to come. The six-month outlook index in March climbed more than 6 points month-over-month, to 62.7.

That optimism is reflected as well in the findings of the just-released 2018 U.S. Houzz State of the Industry report. Interior designers who participated in the survey anticipate substantially higher revenue growth for the year as compared to 2017.

More than three-fourths of residential designers believe revenues will be higher this year, by as much as 11.1 percent on average, resulting in higher profitability. In addition, more than two-thirds expect demand for services will increase as well.

In last year’s Houzz State of the Industry study, nearly one-third of designers had voiced concern about the difficulty of finding prospective customers.

As an indication perhaps of how the market has shifted in recent months, this year nearly the same proportion expressed concern about the shortage of contractors instead. Again this year, managing client’s expectations, particularly in regard to costs, remain the primary concerns of a majority of designers.

Most of the demand for residential design services (about 70 percent) comes from renovation and remodeling projects of existing homes. About 20 percent comes from design of newly built custom homes or new homes for sale.

However, designers in this year’s Houzz study reported a notable increase in commercial design projects as well — 13 percent in 2017 versus 7 percent in 2016. This may be an indication that firms are diversifying more to expand their markets, given the relatively static market growth for interior design services within residential remodeling and design industry overall. It may also be a reflection of the growing crossover between residential and commercial design in sectors like office, hospitality and health care.

Adding support to designers’ optimism are recent encouraging indicators of continued strong demand for remodeling services for the foreseeable future.

In its most recent Leading Indicator of Remodeling Activity (LIRA) forecast, the Joint Center for Housing Studies of Harvard University projects continuing robust homeowner remodeling activity, with overall growth remaining above 7 percent for the remainder of this year and into the first quarter of 2019.

MetroStudy’s National Residential Economic Report for the first quarter of 2018 contains a similar projection. The National Association of Home Builders reports that its Remodeling Market Index (RMI) for the first quarter of 2018 shows the remodeling industry is on “solid footing” and projected to achieve revenue growth this year.

On the commercial side, the American Institute of Architects’ Architecture Billings Index (ABI) for March shows an upward trend and increased activity in the commercial sector month-over-month.

The Dodge Momentum Index also was up for the second month in a row in April, jumping 6.1 percent over March, led by “aggressive growth” of 6.3 percent in the commercial sector. The institutional sector experienced a healthy but more modest growth of 5.8 percent.

As with remodelers, architects and builders, interior designers are facing challenges of rising labor and materials costs along with shortages of qualified labor that may cause delays or project backlogs. In the main, however, current indicators suggest that designers can expect continued demand for their services and positive growth overall this year.

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Multifamily steps up to fill the housing gap

Michael J. Berens Wednesday, April 25, 2018

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Multifamily steps up to fill the housing gap

With little relief in sight, sales and starts of single-family homes tumbled in March. Would-be homebuyers faced with fewer choices, along with rising prices and interest rates, are opting to continue renting for the time being or to purchase more plentiful and often more affordable townhouses, condominiums and co-ops. That has given a boost to the multifamily sector, which rebounded strongly in the first quarter of this year.

Overall, sales of existing homes increased for the second month in a row in March, but at a slower pace than in February, 1.1 percent vs. 3.0 percent, respectively. Single-family home sales, however, remained relatively flat (up just 0.6 percent, and down 1.0 percent compared to last March), constrained by bad weather and continued shortages of available and affordable inventory.

The median sales price of a single-family home ($252,100) is now nearly 6 percent higher than it was a year ago. Condo and co-op sales, although also lagging behind last year’s figure, rose 5.2 percent for the month, following a 6.5 percent decline in February. Condo prices have risen more slowly and often are more affordable for first-time buyers. The median sales price for an existing condo in March was $236,100.

Scarcity of existing homes for sale helped push sales of new homes in March up 4 percent to their highest level since last November. The U.S. Commerce Department also revised figures for February upward, thus improving the first-quarter performance numbers. New home sales ended the month 8.8 percent higher than they were a year ago.

The median price of a new home reached $337,200 (up 4.8 percent from last March). However, the average sales price was $369,900, well above the affordability level of many prospective homebuyers.

Wintry weather may also be partly responsible for the weakening in single-family building activity in March. While residential construction rose by nearly 2 percent for the month, new single-family construction starts (in units) fell by 3.7 percent, following a near 3 percent increase in February.

In addition, single-family permit requests experienced their biggest monthly decline in seven years, down 5.5 percent, and completions dropped 4.7 percent. Multifamily starts, on the other hand, soared 14.4 percent, lifting industry activity for the year to nearly 11 percent above the same period last year.

Noting the volatility in construction figures from month-to-month due to the influence (or lack) of large projects, Dodge Data & Analytics reported a 2 percent decline in the value of residential construction in March, largely due to a 7 percent drop in the value of new multifamily projects. However, that came on the heels of a 6 percent gain in January and a whopping 36 percent hike in February. The value of single-family construction remained unchanged, holding more or less the same pace for the past several months.

Despite the rather tepid start to the year, builders remain optimistic about business conditions going forward. The National Association of Home Builders measure of builder confidence, the Housing Market Index, which had been at or above 70 for the previous five months, dipped just one point in April.

“As we head into the spring home buying season, we can expect the market to continue to make gains at a gradual pace,” observed NAHB Chief Economist Robert Dietz, citing the bad weather in parts of country as a dampening factor in March.

On the consumer side, demand for buying a home remains strong, with both Fannie Mae and the National Association of Realtors reporting prospective buyers were feeling positive in March about current home market conditions. However, many of those potential buyers may have to wait.

The long-range trend, according to MetroStudy’s most recent five-year residential economic forecast, is for a continued environment of undersupply and increasing costs that may not level out for several more years.

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