Local real estate market cools off during October

by Jill Henry

SBJ Reporter

jhenry@sbj.net

While the real estate market has slowed from the frantic pace set this summer, local real estate agents and bankers say the market is still strong.

The city of Springfield issued 262 building permits in October, a 1 percent increase from 260 issued in September and a 21 percent decrease from the 333 issued in October 2002.

Construction of new single-family homes within the city of Springfield increased slightly in October, according to the city's building development services office. Forty-seven permits were issued in September, and 49 were issued in October. Compared to the same time last year, September experienced a 47 percent increase in new home construction, while October experienced a 49 percent increase. As of October's year-to-date totals, 330 building permits had been issued in Springfield.

More building permits are being issued, but one lender said the number of home loans doesn't necessarily increase as well.

"Business actually has fallen off a lot," said Jerry Palmer, mortgage banker for First Horizon Home Loans. "I've had a lot of (real estate) agents tell me that business has slowed down for them, too. But we're still getting calls on purchases, refinances and debt consolidations."

A comparison of third quarter 2003 to third quarter 2002 reveals an increase of 22 percent in home sales, according to Bob Fitzgerald, president of the Greater Springfield Board of Realtors. As of September, Fitzgerald said the board's data indicates the 2003 year-to-date total for units sold represents a 20 percent increase compared to the same period in 2002.

Fitzgerald feels confident about the current role of the real estate industry in Springfield's economy.

"I think real estate is leading our economy in its recovery," he said. "There's no question, and it has been for quite some time. In particular here in our market, it's very strong. Our new construction is showing absolutely no sign of slowing down. It continues to grow. And it's in all price ranges. It's not just limited to any particular one."

According to Danna Hartley, president of the Greater Springfield Board of Realtors Multilist, the average home sold in the Springfield area cost $119,000. She said Springfield's south side continues to be the most sought-after address, and the average time for a house to be on the market in Springfield is 68 days.

Many established home buyers are still taking advantage of low interest rates to upgrade, but Hartley said the houses they leave behind are not creating a surplus of white elephants.

"In two or three years, the first-time home buyers have children and they need a larger home and their income has, hopefully, increased and they just step up," Hartley said. "And your people who are empty nesters now want a smaller home. It's just a circle."

Hartley said first-time home buyers are the group most affected by the low interest rates, and creative financing has allowed many to get into homes without out-of-pocket down payments. "They are able to get into a house, where two years ago it was just out of the question. They've really maximized the market. It's been a wonderful thing for them."

Fitzgerald predicts many potential home buyers are still waiting for the perfect opportunity to buy.

"There are still people out there who are sitting on the fence, who are thinking interest rates are going to go down before they buy something," he said. "When those interest rates start to tick up just a little bit again, I think you're going to see another surge of home buying from those people who have been playing the interest rate market."

Homes aren't the only properties in demand. Dan Derges, vice president of The Bank's South Campbell location, said commercial loan activity is picking up, due in part to the lowest prime rate in 50 years causing area businesses to consider expansion in terms of equipment or new facilities.

"We're seeing an increase in what I call business acquisition financing, which is from the general turnover in businesses that have been occurring in a market as great as southwest Missouri," Derges said. "In addition (we're seeing) an increased amount of expenditures in new buildings as well as equipment, probably real estate financing for new buildings. Or, with rates as attractive as they are right now, businesses looking at purchasing versus continuing in a leased environment."

The city of Springfield issued nine building permits for new public and industrial buildings last month, compared to eight issued in October 2002. October also saw 54 permits for remodeling and repairs to existing public and industrial buildings, compared to 58 issued at the same time last year.

The majority of business-related loans Derges sees are for working capital, financing and long-term real estate financing. However, "with manufacturing businesses starting to feel more optimistic about their long-term picture, we're seeing some (loans for equipment)."

Galen Pellham, broker for CJR Commercial, did not disclose figures, but said that his business is busier than this time last year. "I've had several investors buy property because interest rates have been so low that their projects can immediately cash flow much better today than they could five years ago."

"I think commercial (real estate) mirrors the growth of residential," Pellham said. "With interest rates being low, people are taking money that they've had in the stock market and buying investment properties."

Fitzgerald doubts the holidays will slow down the industry, citing long holiday weekends as a popular time for out-of-town buyers to look at properties. "But I don't see our interest rates going up by leaps and bounds to the point where it's going to create any kind of a significant pressure on housing sales," he said.

Derges also expressed confidence in interest rates remaining reasonable.

"What we have seen with the recent Fed meeting is no indication of an increase in interest rates coming on the short term side any time soon, and a lot of that has to do with the fact that they're going to look for real solid indications of an upturn before they decide to make those changes," Derges said.

"Then I think it will also be slow because of the implications of the 2004 elections, so we are looking for a flat interest rate environment for the near term."