Budding optimism for spring residential construction
by Blair Koch
Published: March 6th, 2012
In 2011 that number was 27, said Greg Johnston of the Home Specialists Real Estate Co.
He said there are a few signs that 27 will not become the new normal, including an increase in the number of building lots sold in 2011 compared with 2010 and the slow removal of empty homes from the existing inventory.
Johnston is hopeful more homes will be built this year in his area but admitted consumer sentiment is still a challenge.
“People are fearful they may not have their jobs,” he said, “so instead of moving forward to build their dream home, even though construction costs and loan values are phenomenal, they are being content with what home they have.
“You can’t blame people, really, for choosing peace of mind instead of a new home, although we in the industry would really like things to get busier.”
Residential home construction across Idaho shouldn’t dip below last year’s levels, said Robert Denk, senior economist with the National Association of Home Builders.
“We’re optimistic Idaho is turning around based on a number of factors,” Denk said.
He pointed to sales data from the last six months of the year, compiled by the Intermountain Multiple Listing Service.
“All of that data, taken together, showed the state holding stable and moving in the right direction. It looks like we’re turning a corner,” he said.
Other factors include the strength of the overall economy and home prices compared to income. Unemployment in the state continues to drop as private sector employment picks up and homes are increasingly more affordable.
Denk, citing the price-to-income ratio from the National Association of Realtors, said historically people bought homes priced at about 2.4 to 2.6 times their annual income. During the bubble’s peak that number jumped to 3.7, Boise included.
“New home prices, relative to income, was really inflated,” Denk said.
Today the price-to-income ratio has floated back down to about 2.4.
“Now homes look like a bargain,” he said.
Business growth is already pushing residential building in Twin Falls and Kimberly. Chobani, the Greek-yogurt plant under construction, is just a few miles from Kimberly, and Jenny Nickerson, the city’s planning and zoning director, said she has taken several calls from interested contractors looking to house some of the 400 expected employees.
“We saw a boost in new construction permits right after Chobani announced they were coming,” Nickerson said.
Typically, new building permits for single-family homes don’t start arriving in her office until later in the year, but by the end of January she had processed six.
Boise, which historically drives nearly half of building and real estate activity in the state, is expected to lead the recovery in volume and value, Denk said.
Troy Langford, owner of BuildIdaho.com in Boise, expects a busy 2012. This year’s Parade of Homes already has 40 homes registered – a record, Langford said, with a higher average building permit value.
“New home construction is driven largely by migration, and we’re starting to see that pick up again,” Langford said. “We have a strong retired and semi-retired market, empty nesters following grandchildren to Boise.”
Langford said he expects sales to continue as posted by Intermountain MLS, which showed January 2012 sales in Ada County at 825, up more than 21 percent from the same month last year.
“There are incredible trends I’m seeing right now,” Langford said. “For one, two years ago it was all about homes $250,000 or less, and now we still see that $250,000 price point home, but I’m seeing more and more homes sold and built that are worth more.”
Simply put, a market exists for homebuilders that made it through the last decade with their jobs and homes above water, and now they’re taking advantage of low interest rates and affordable building costs.
Jerre Fender, of CP Capital Solutions in Twin Falls, said financing options are “thawing out.”
“Some lenders that completely pulled out back over the last few years have started to dip their toes back into the pond. That said, though, credit scores, full paperwork packages and increased down payments, up to 40 percent, are not uncommon,” Fender said.
Financing probably will continue to be a challenge for builders as well.
“We have builders here in Pocatello that would love to build a spec home or two but they can’t get financing,” Johnston said. “We are all moving slowly, cautiously forward, but hopeful. Things can’t stay down forever.”