Home builders adapt `tried and true' for today's families. Aiming for the `move up' market; exercise space in the bathroom
A few years ago, post-modern homes were going up almost everywhere. You could spot them a mile away, with their unpainted wood, uneven wall levels, huge glass windows, and unusual landscaping. Many even sported solar panels on the roof.
Today, builders are ``running back to the tried and true,'' says Ronald Alex, president of Alex & Thornton Associates, an architectural firm near Boston. Housing styles have begun to mirror the consumers' fears that they won't get a good return on their investment, he says. And the more traditional a house looks, the more easily it will sell.
Mirroring the outside, the interior of middle-income single-family homes has taken a conservative cost-conscious turn. Facing a softer market today, Mr. Alex says, builders are incorporating fewer ``treats'' and being less creative.
Still, some of the more important forward-looking changes now demanded by those who have their homes tailor-built have trickled down into the lower end of the market.
Because both parents work in many families today, ``time together is very precious,'' says Sheila Brighton, an account executive at the Housing Information Center, which every year exhibits the NEST (New Expanding Shelter Technology) home, a model of the latest building technology. As a result, she says, ``the home has become a focus for family life.''
Barry Berkus, president of the Berkus Group Architects in Santa Barbara, Calif., which designed this year's NEST home, describes how dramatically the layout and design of contemporary homes have changed to fit the subtle demands of this new house buyer.
In traditional houses, the kitchen sink is mounted on a counter on the wall, facing the backyard, so that mothers could watch their children as they played. Today, because the kitchen is the central room for many families, Mr. Berkus says, the sink has become an island in the middle of the room.
``In many of our homes, the master bath has become a spa, with spaces for sitting and talking as well as exercising,'' he continues. ``Believe it or not, families now spend almost as much time chatting in the bathroom as the kitchen.''
The bedroom has become a retreat. And office extensions have also become very important, says Alex.
These structural changes are only a small part of the new direction builders have taken as a result of the latest demographic shifts.
Working couples, usually with children, and empty-nesters are the two biggest purchasers, and the older group is gaining in numbers. So home builders are trending toward this ``move-up market,'' which is more affluent, and away from the first-time buyer, who can usually only afford basics, says Kelly Somoza, director of investor relations at US Home Corporation, a Houston-based builder.
Developers are also steering their projects toward some of the more expensive locations to attract the growing population of pre-retirement buyers.
That means that upper-range, and some middle-range, houses are bigger, or at least more complete, when they're finished, and include additional amenities that used to be considered luxuries. ``Now one bathroom is unheard of, even in a one-bedroom home,'' says William Hoag, head of marketing at Fairfield Communities Inc., a developer in Little Rock, Ark. While the construction materials used may be cheaper, he notes, the cost of building has gone up, so that the lower end of the market is disappearing.
Yet, too much construction, a volatile stock market, and consumer concern about the economy are pinching some of this ``extravagance'' and unbridled growth. It may also push development out into areas previously ignored, and encourage rehab work in the more desirable locations, architect Berkus says.
Overbuilding, a lot of it planned while single-family houses and condominiums were being snatched up by eager buyers, has resulted in a glut of units in several major United States cities. In more distressed areas, like Dallas and Los Angeles, developers often bargain with buyers, who may hold out to see if prices will fall.
According to a recent report by the Lomas & Nettleton Company, a mortgage and lending firm, residential building permits fell 12 percent nationwide during the third quarter of 1987. Of the largest housing markets, only New York, Long Island, and Washington, showed sizable gains.
``Never in the history of the residential building business have we had such a competitive environment,'' says Thomas Powers, executive vice-president at Goodkin Research Corporation, in Fort Lauderdale, Fla.
Where a house is in danger of not selling, a builder and buyer may ``dicker back and forth over who's going to pay for the wallpaper or the bathroom fixtures,'' says Mr. Powers, who advises builders on the economic feasibility of their projects. ``[The developer] might even throw in the washer and dryer or a set of [ceiling] paddle fans.''
Consumer choice is at a new high. But to get rid of excess units, builders are having to price more competitively and offer more for less. While some overbuilt areas on the West Coast and in the South are filling up, others seem to be standing still.
Back in 1982, ``people were buying whatever they could buy for fear that prices would go so high they wouldn't be able to afford anything,'' says Jeffrey Payson, president of General Homes Corporation, in Houston. During that time, ``all these little square boxes on little lots sold,'' Mr. Payson says.
When mortgage rates began dropping, ``there was a tremendous release of pent-up demand,'' says Peter Kasch, executive vice-president at Condominium Collaborative Inc., in Boston. The investor marketplace opened up as well, and people began buying and reselling property for profit.
Today, the little square lots in Payson's market aren't doing so well. Nor are the ``cookie cutter'' condominiums you see planted across flat plots of land, Mr. Kasch says, which would have sold immediately until last year.
Inflation worries have eased since the Oct. 19 stock plunge, helping to moderate housing prices. Mortgage rates, which were rising sharply before Oct. 19, have also declined. For example, on Oct. 19, the conventional mortgage rate was about 12 percent, says Michael Carliner, an economist at the National Association of Home Builders. By the 20th, it was down to 11.5 percent. As of Dec. 31, it was 10.7 percent.
But these growth-promoting conditions won't help the industry if the economy slows down in 1988, says John Tuccillo, an economist at the National Association of Realtors.
While many in the industry are optimistic about the coming year, a number of them say ``Black Monday'' has already taken its toll.
``If people are afraid of losing their jobs, they're not going to buy houses,'' says Dr. Carliner.
Mr. Hoag at Fairfield Communities expects that some demand for the traditional single-family home - at prices over $150,000 in major markets - will start dropping off, because ``consumer comfort'' has been shaken. A larger portion of the industry expects a more noticeable slowdown in the seasonal market, which includes summer homes and winter resorts.
If ``the Wall Street yuppie was a builder's prime market, [that builder] is going to be in for a long '88,'' says Powers at Goodkin Research.
But Carliner calls it ``a mere two-month blip in the market'' for real estate. His association says it even expects the market's fall to help home building.
Falling mortgage rates ``have had a more positive impact than the decline of stocks has had a negative impact,'' Carliner says.
The Commerce Department's most recent figures on spending for residential construction seem to reflect the drop in rates. Single-family building was up 0.9 percent for the month of November, and multi-family housing was up 2.5 percent. Fourth-quarter sales were down, however.
Home buyers aren't necessarily heavy stock investors,'' says Ms. Somoza at US Home.
Job formation always has a huge impact on home building, developers agree. Despite low mortgage interest rates and an abundance of supply, unless job formation remains at last year's levels, the demand for new housing will fall off, Payson at General Homes says.
Unfortunately, job growth is being prevented somewhat in the Northeast Corridor. From Boston to Philadelphia, extreme demand for housing space has pushed home prices so high, it's difficult to attract new workers, and in turn attract builders. The surge of condo development, introduced to allow first-time buyers to purchase an affordable piece of real estate, may have reached its peak. Apartment vacancy rates are the lowest in the country.
``Up until last fall, builders were talking about universal strength throughout the Northeast Corridor,'' says David Kirk, director of the Boston Financial Consulting Group, where 50 percent of the clients are real estate developers. Underlying that optimism, however, was extreme concern about affordability, he says.
While a lot of developers would prefer to build more rental apartments to help loosen the market, ``rents aren't high enough to pay the debt and mortgage bill that's created,'' says Kasch at Condominium Collaborative.
Tax reform made it more unattractive for builders as well, Powers says. He predicts that excess rental properties will be ``eaten down'' in 1988. ``You're going to see vacancy rates of 4 or 5 percent in a vast majority of markets at the end of next year.''
Boston is one of several major cities already below that point; it had a 2.4 percent vacancy rate as of last May. The problem of affordability created by the ``appreciation of housing prices outstripping the growth in income'' could prevent further growth, and has already kept some developers away, Mr. Kirk says.
So far, though, ``more people are putting their homes on the market,'' says Jean Murgida, who designs mortgage programs for the Bank of Boston. While she says it's too soon to sense the house-buying public's mood, she says activity so far looks hopeful. ``The last two weeks, which are usually poor because of the time and weather, were pretty good.''
A Jan. 19 business story on home building incorrectly named the company of Ronald Alex. He is a principal at LPBA/Architects Inc., in Wellesley Hills, Mass. Also, in a Jan. 4 story on corporate ``headhunters,'' references to Ward International should have read Ward Howell International.