As housing starts in Springfield hit their lowest point in more than a decade this year, area home builders are navigating a market vastly different than the home-building peak five years ago - and no one's sure when the trend will shift upward.
The city reported 142 single-family permits worth $19.9 million in 2008, down 32 percent from 208 single-family permits worth $33.6 million in 2007, and 73 percent drop from the 2004 peak of 535 new homes worth $80.5 million.
Historic drop
Builder Terry McKee of MGM Properties has felt the decline. His company, which builds both speculative and custom homes, built 18 homes in 2008, down from 26 homes in 2007.
According to data collected for Springfield Business Journal's listing of area home builders (see page 16), the estimated market value of MGM-built homes in 2008 dropped to $3.95 million from $7.3 million in 2007. He said that, while he thinks the market is near the bottom, he doesn't anticipate a turnaround anytime soon.
"I think it's going to come down to the best locations and knowing the price range in that area that people are looking at," McKee said.
"I don't see things changing for at least a year. As far as getting back to the levels we were at in 2005 and 2006, I don't think we'll ever see those again."
The outlook is similar from custom home builder Kevin Clingan of Kevin Clingan Home Design and Construction. Clingan, past president of the Home Builders Association of Greater Springfield, said that while his company now has three custom homes under construction and a fourth home sold, as well as two major room additions, the slow market has had the unintended benefit of shaking out some of the "amateur" home builders - those who have other jobs and build a few homes as a side project.
"It won't go back to the way it was for quite some time, and many of us hope it never does. It was out of control in the last few years, which is what caused this (excess inventory)," Clingan said. "It's definitely getting the unqualified builders out of the market."
Lower prices
Average new-home prices in Springfield also have dropped 13 percent in 2008 to $140,100, down 13 percent from $161,747 in 2007. In 2005, the average price of a new home was $168,109.
Clingan said that while he hasn't personally seen customers cutting back on the amenities or square footage in their home plans, he's not surprised by the overall trend.
"It would make sense to say they are cutting back, but the people I'm building for, I can't say they're scaling back at all," said Clingan, whose homes are typically in the $150,000 to $250,000 range.
McKee wasn't surprised, either, though he noted the change may be due to an increased focus on energy efficiency, and the accompanying cost savings.
"We're going to see a little bit smaller homes - people will still want the amenities, but they're going to want to be energy efficient because they're more energy conscious," McKee said. "That's a trend we're going to see for a while."
He doesn't think, however, that the trend toward energy efficiency will mean a dramatic increase in "green" homes; he said the green technology has still not become cost-effective enough to merit the extra expense - at least for homes that aren't custom-built.
"The average person lives in a house five years, and you could never recoup that investment in five years," McKee said. "A lot of people won't go that way because it doesn't make fiscal sense - that's going to be a very slow change over the course of time."
Preparing for improvement
Some numbers indicate the local new-housing market may have hit the bottom and is inching upward.
In Springfield, for example, three of the last seven months of 2008 saw more residential building permits compared to 2007.
Clingan said that higher home sale numbers are needed to reduce the excess home inventory and get the construction field going again, though he thinks the halcyon days of the early 2000s are gone for good.
"I think the banks are requiring more like what they used to - a 20 percent down payment - and that will keep the spec house market from turning around as fast," Clingan said. "But Realtors tell me the inventory is slowly getting eaten up, and at some point there will be a demand for spec homes again. It'll be at least a year off, but I'm optimistic that demand will come back."
The latest numbers from the National Association of Realtors offer a glimmer of hope.
Nationally, the 4.91 million new and existing homes sold in 2008 were down 13 percent from 2007 and at the lowest point since 1997, according to NAR. But existing-home sales in December hit an annualized rate of 4.74 million units, up from 4.45 million in November.
NAR points to the low price of homes, combined with interest rates that have dropped to record levels in an effort to entice buyers back into the market.
Todd White, senior vice president of Arvest Mortgage and a member of the board of directors of the Mortgage Bankers Association of America, said it's just that kind of news that will boost consumer confidence and turn around the market.
White can speak on strong performance - Arkansas-based Arvest topped $1 billion in loan originations in 2008 for the sixth straight year. White said Arvest received more than 2,000 mortgage applications and expects to close in excess of $150 million in mortgage loans in January alone.
While White declined to indicate how much of that lending was in southwest Missouri, he said the key to rising above challenges presented by the current economy lies in focusing on local conditions rather than being bogged down by national news.
"The Missouri, Arkansas, Oklahoma and Kansas region has done better than most of the country," he said. "A lot of our production is done in Oklahoma, and that state is one of the real bright spots - they've continued to have slight appreciation in the face of this economic downturn."[[In-content Ad]]
