There are rumblings of movement in the housing market here in Washington, D.C. We're a good barometer for the rest of the country, because we epitomized the boom and fizzle that undermined the financial stability of the nation. Home values nearly tripled between 1998 and 2006, and they've dropped by 25 percent or more here in the aftermath.
As the beast reawakens, we're seeing the greatest flurry among houses priced below $500,000—ones in good shape and close-in locations. And there's renewed hope for those languishing houses just under the million-dollar mark. If you aren't familiar with real estate in the nation's capital, you should know that $500,000 is entry-level for desirable neighborhoods near downtown. In the very best of those neighborhoods, a fixer-upper is roughly $750,000.
What does a cool million buy here? A spacious, partially renovated older house in a good spot or a flawed, one-off spec house on the brink of foreclosure. As perspective, three years ago a million got you a teardown in the hottest power-broker enclaves.
Despite the current softness in the market here, we will likely never again see a pro forma that makes million-dollar teardowns worthwhile—for a spec builder or a private buyer who covets a new custom home. With very few undeveloped lots left, restricted lending for the foreseeable future, and trimmed portfolios among the cash buyers, we're looking at a future geared largely to remodeling work. This is true of many mature cities.
While perhaps not as glorious as the custom home jobs architects covet, remodeling is a pretty steady gig. Many of you have found refuge in it during the new-home building catalepsy. And many of you will find remodeling a permanent mainstay of your practices. While this seemed feasible in the go-go days of $500,000-and-up remodels in places like Washington, now you're looking at the headroom between the $750,000 fixer-upper and the million-dollar partially renovated house. For that $250,000, your clients will want a new kitchen, family room, master bedroom and bath suite, and all remodeled baths—plus your fee included. Gulp.
If you're in a market where the numbers are less inflated, please adjust the math. My point is that the pie is shrinking substantially for everyone involved in gussying up our dowdy existing houses. It sounds more and more like a starvation diet for the residential architect, who never had much of a feast even at the height of the boom. Some of you are adjusting to new economic conditions by lowering your fees and trying to make up the loss with an increase in productivity. But that's a paradigm ill-suited to the attentive, creative nature of custom work.
Architect John Brown, RAIC, this year's Rising Star Leadership Award winner, thinks the answer isn't in taking less for the work you do, but in doing more of the work now claimed by others. He's grabbing as many pieces of that remodeling pie as he can—including the fees for design, construction, and interiors and the profit in furniture sales. What's the most lucrative slice he's taken hold of? The Realtor's commission at the start of it all. Although he has several advanced degrees to his credit, he says it's the best credential he ever earned.
It's a new dawn; it's a new day.
Comments? E-mail S. Claire Conroy at [email protected].
