Builders seek their own recovery

Though U.S. housing starts dropped 39 percent in 2009, according to the Census Bureau, the southwest Missouri home building industry seems to be turning around.

The local market was bottoming out at the end of 2008 and through the first six months of 2009, said Matt Morrow, executive officer of the Home Builders Association of Greater Springfield. Now, after a long, hard winter, there are signs of life.

When the bottom fell out, the market was overbuilt, with a large inventory of newly constructed homes.

But during most of 2009, buyers were closing on twice as many new homes as were being started, Morrow said and, as a result, inventory has decreased dramatically.

According to Springfield Multilist data, covering the five-county metropolitan statistical area, a total of 1,605 units were sold in fourth-quarter 2009, a 36 percent increase compared to the approximately 1,183 units sold in the same quarter in 2008. Sales volume was $203 million in fourth-quarter 2009, up 32.2 percent from approximately $153.5 million in 2008.

"That's the first time in about two years that we've seen an increase quarter-over-quarter in sales activity through the Multilist," said Bob Fitzgerald, owner of Fitzgerald First Realty and Multilist president for the Greater Springfield Board of Realtors. "Over the past year, most of the new construction inventory has been absorbed into our market."

The average sale price dropped slightly, from $129,900 in fourth-quarter 2008 to $126,600 in fourth-quarter 2009, which Fitzgerald feels reflects the first-time buyer impact.

Now, according to MarketGraphics Research Group, which does research for HBA of Greater Springfield, this area "will have what they call an 'unhealthy' shortage of homes for sale by the end of the first quarter of 2010," said Rusty MacLachlan, president of both J. Russell MacLachlan homes and the Springfield HBA.

MarketGraphics also projects that southwest Missouri's population will grow about 8 percent in the next five years.

"That's not explosive growth, but it's growth," Morrow said. "In fact, we're the only part of the state of Missouri that's projecting positive growth in population."

And while U.S. unemployment reached 9.4 percent in November, the Springfield MSA fared better, with unemployment at 8.2 percent, which he said underlines a home construction recovery in the making.

Rumblings of recovery

That recovery will be slow, however. Terms like "shortage of homes" are relative, Morrow noted, and it won't take thousands of homes to meet local demand in the year ahead.

Anecdotally, MacLachlan and other custom builders report that they are seeing indicators of renewed interested from potential buyers.

"From what I'm seeing, it's really breaking loose," said Kevin Clingan, owner of Kevin Clingan Home Design & Construction. "I'm getting a lot of phone calls. I'm bidding several jobs and have already landed a couple." He said his latest building jobs are for good-size homes, primarily in Springfield and ranging in value from $500,000 to $2 million.

MacLachlan said he's hearing positive rumblings as well.

"The phone is starting to ring a little bit. We had very few to none in 2009, and I'm starting to get those inquiries now," he said. "I've talked to developers who say lots are starting to sell, or at least people are asking about buying lots."

Morrow said much of the market activity is in entry level housing and is coming from buyers who are stepping up out of their first homes. "A lot of that is driven by the federal tax credits, the first-time homebuyer tax credit for $8,000 and the new $6,500 existing homeowner tax credit for buying your next home," he added.

Fitzgerald pointed to builder Kenny Bussell, who recently sold four houses in the $125,000 to $130,000 range in two days. Fitzgerald, who also develops through First Venture LLC, is partnering with Bussell to build seven speculative houses in three different neighborhoods, all priced between $160,000 and $200,000, which he sees as an underserved niche.

Market evolution

While there are signs of life in the home construction business, "that doesn't mean we've just come charging back," Morrow said.

As the industry rebounds, it may be fundamentally changed.

"We're going to have to function differently as an industry than we have in the past," Morrow said. "Builders and developers are already becoming - and have the need to become - much more sophisticated in how they determine where they're going to build and what they're going to build."

Demand for homes is unlikely to approach the record levels of recent years. MarketGraphics Research Group projects that in a five-county area, including Greene, Christian, Stone, Taney and Barry counties, housing starts will creep upward from a low of roughly 1,000 in 2009, to around 2,300 in 2015, less than half the record 5,079 starts in 2005.

An emerging trend is for homes with less square footage but more amenities.

"I think it's kind of going the way of the big gas-guzzler cars in the '70s" Mac-Lachlan said. "Cars started to get a little smaller and a whole lot nicer. I'm finding that is a trend."

Builder Jason Bekebrede, owner of Monticello Homes and Development, agreed that customer philosophies are changed.

"They're not putting in as much square footage," he said. "They're thinking about each square foot that they do have and each dollar they spend on that square footage."

Bekebrede said he finished one house in early 2009 and didn't start any new builds for the year. He held on by doing renovations and additions, and he used the time to obtain his green certification from the NAHB.

"It will be a long recovery," he added, "but I think we're at least moving in the right direction now."

The ongoing recession has brought a kind of economic Darwinism to bear on the construction industry: The strong have survived while the weak - and the heavily leveraged - have perished.

"There have been builders who are no longer building; no question about that," Morrow said. "But the bigger issue on job loss is not really builders; it's suppliers and subcontractors."

Morrow said industry research shows that the construction of 100 single-family homes generates, on average, 284 full-time local jobs in the year the homes are built. "If you do the math on that and you figure that in Greene County we built about 600 to 900 fewer homes than we were building per year, that's a lot of jobs."

While signs of recovery are welcome, no one who has survived the downturn wants to see a sudden return to boom times.

"In a perfect world, we will have a steady climb and it won't be a land rush all at once," MacLachlan said. "It's going to take a while for these lumber suppliers to crank their mills back up; and the same thing with shingle and drywall producers. If demand peaks before supply is able to catch up to it, that's going to send prices up extremely high."

In the meantime, builders say there is no better time to start a project. Builders can get to projects fairly quickly, top labor is readily available and materials costs are as low as they are likely to get.

Construction materials and supplies inched up just 0.2 percent in December, according to a Jan. 20 producer price index report from the U.S. Labor Department, and they have increased just 0.4 percent since December 2008. And even the commodities tracked by Associated Builders and Contractors Inc. that showed the greatest change - prepared asphalt, tar roofing and siding products - are still down 4.7 percent compared to December 2008.

"Materials costs have stabilized and in some cases are below what they were even a year or two ago," Morrow said, "and the labor pool is extremely competitive right now."

All the signs have created optimism for builders, including Clingan.

"I'm usually the one who's worried about everything. But for the first time, I see the light at the end of the tunnel," Clingan said. "And we sure need it."[[In-content Ad]]