The decline of U.S. home prices appears to be slowing, according to a widely followed index released this week, and green building pros are looking for signs of an economic recovery in their niche markets.

Home prices fell 17.1% in the year ending May, a large decline but the fourth consecutive month in which the rate of decline has slowed, according to Standard & Poor’s Case-Shiller home price index (HPI). But in many hard-hit markets, high-performance builders are not celebrating just yet.

“Is this the end of the housing downturn? I don’t really know, but the one thing is that the downturn is all very regionally segmented,” says Oklahoma green builder Vernon McKown. “Tell them this is the end of the downturn in Florida or Las Vegas and you’ll get laughed out of the building. Those markets are still so grossly oversupplied.”

Even though interest in energy-efficient homes has dropped off a bit from when gasoline was at record-high levels, eco-friendly builders across the country enjoy a solid niche, says McKown, president of Norman-based Ideal Homes, which builds to Energy Star standards.

Environmentally conscious homeowners have kept the niche alive, even in a sour economy, he says. “There’s a given pool of buyers that find green building very important and another group that finds it logical and another group that straight-out doesn’t care,” he says. “So for us, green building is no better or any worse than in previous years.”

But McKown, a former president of the Energy Environment Building Association (EEBA), does believe that his Tulsa market, where housing prices have risen 2% over the past year and job growth is strong, has “turned the corner.”

Leif Jackson, Jackson Remodeling, Seattle
Leif Jackson, Jackson Remodeling, Seattle

Recessionary Woes
On the West Coast, the recession has adversely affected Seattle’s green home building market, according to remodeler Leif Jackson of Jackson Remodeling. “Projects are getting cut to the bone, and many--not all--clients are choosing not to invest in any ‘non-essential’ items,” he says. Jackson is budgeting for revenue this year to be down more than 40% from 2008, but he is still hopeful for the future of green remodeling. “I am still resolute in my belief that green is the only sensible way to build and remodel,” he says. “I used to say that remodeling is recession-proof--hard times spur homeowners to remodel rather than invest in a new house.”\

Jackson says he has not picked up any jobs created by the federal economic stimulus bill, signed by President Obama in February to help create jobs for insulation contractors, window installers, and other pros whose work involves making existing homes more energy efficient.

"We have not tapped into stimulus projects because, right or wrong, my impression is that they are specialty projects like insulation and window replacement," he says. "I am not to the point where I need to learn a new specialty and jump into a very competitive market with much more seasoned contractors."

When consumer confidence picks up, Jackson believes many homeowners will be willing to spend extra for eco-friendly retrofitting. “If somebody’s windows need to be replaced, eventually they will be replaced and many homeowners will opt to put in high-performance windows,” he predicts. “People are being cheap and shortsighted right now because they’re scared. It can’t last forever.”

White Plains, N.Y., remodeler Sylvain Cote also believes green homes will be in demand once the recession is over. “No question, if I could I would buy a few existing homes in a nicer location where there is curb appeal already and turn them green, because that will be the first to sell when things turn around,” he says.

Cote, an NAHB Certified Green Professional, is not surprised by the news of an uptick in the market. In spring 2008, he says, his company laid off four employees. Last week--in a small but encouraging sign--he hired an intern.

Cote says his Web site, which touts his company’s green services and offers eco-friendly tips, has helped to keep Absolute Remodeling afloat. “We are seeing an increase in inquiries,” he says. “I know it’s not where it was, but it’s definitely picking up.”

U.S. Markets See Slight Increases
Analysts also believe they see signs that housing has perhaps begun to recover.

“To put it in perspective, this is the first time we have seen broad increases in home prices in 34 months,” says David M. Blitzer, chairman of Standard & Poor’s index committee. “This could be an indication that home price declines are finally stabilizing.”

The 10-city composite, which follows Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, D.C., increased 0.4% on monthly basis. Prices also inched upward in Case-Shiller’s 20-city composite, which covers those same 10 cities, plus Atlanta; Charlotte, N.C.; Cleveland; Dallas; Detroit; Minneapolis; Phoenix; Portland, Ore.; Seattle; and Tampa, Fla.

On an annual basis, both composites posted drops, with the 10-city index falling 16.8% compared to the same month one year ago and the 20-city index sliding 17.1% for the same period.

Las Vegas and Miami, for instance, continue to encounter soft prices, with their city’s index values declining 2.6% and 0.8% on a monthly basis in May, according to Case-Shiller data, making them the weakest performers. Cleveland, in contrast, reported a 4.1% gain, which was the largest increase among the 20 cities covered.

Despite the decreasing rate of decline, analysts still don’t expect the market to stabilize--much less prices to rise--until late next year at the earliest. Until then, many green pros say they will remain hopeful.

“It’s a market-by-market situation but I do think if you look at the 50 states, my best guess is that 45 of them have bottomed out and are coming around,” says McKown.

Jennifer Goodman is Managing Editor of EcoHome. Intern Katie Gallagher contributed to this report.