|
|
|
Defying Conventional Wisdom
Despite down market, dwindling supply spurs a mini-boom in residential real estate
|
Business New Haven
9/16/2002
By: Melissa Nicefaro
|
Even homebuilders admit they thought once the stock market began losing ground and the economy faltered, the remodeling and new homebuilding business would suffer this year.
But that's not what has happened, according to Bob Wiedenmann, president of the state's Home Builder's Association. “It's been real busy,” he says. “Everyone I've talked to is just going as fast as they can and it's been that way for an extended area of time.”
Wiedenmann, who owns Sunwood Development Corp. in Wallingford, says business is brisk across the state. Most Connecticut regions are experiencing a healthy building and remodeling environment, he says.
It doesn't seem like any price ranges are busier than any others, either, according to Wiedenmann. The lower price ranges are always busier due to greater volume, but even the $500,000-to-$1 million homes are still selling faster than they can be built.
One principal reason for the construction boom is low interest rates. “That encourages people to make moves and they can afford more house than they would otherwise,” Wiedenmann notes.
Wiedenmann originally figured that the stock market's plunge might scare people away from the new home market, but it seems to have helped it. “People are saying they can't get any decent return on money in the stock market, so they invest it in real estate or in their own homes,” he says.
“People say if their money is not going to be any more valuable next year in the stock market, they may as well put it in their house. They know that the house value is going to stay even or go up. They may as well enjoy it along the way.”
The enhanced interest in keeping the money at home causes higher demands on homebuilders such as Kevin Ahern, owner of Litchfield Builders in Hamden and a member of the Home Builders Association of New Haven County.
Ahern says the market is fantastic and he sees no pullback in sight: “You've got great new-home prices and you've got a fantastic remodeling industry,” he explains. “Things don't even seem to be effected by what you call losses in people's stock market portfolios.”
Ahern says housing prices are still solid and money is being spent on remodeling and the overall construction industry has remained busy.
“Even some of our manufacturing clients are still spending money on construction,” says Ahern. “The only nervousness I'm hearing is via the media. You see CNBC and hear all the bad talk about the market, but I'm not seeing it when it comes down to the grass roots. I'm seeing all positive things.”
Ahern acknowledges that the past year has been nerve-wracking and as retirement accounts diminished, he expected his phone to stop ringing altogether.
The first place a pullback was expected is in the remodeling market, according to Ahern, because, “When you and I have a retirement account and the statement comes one quarter and it's 'X' amount of dollars and in the next six months, it's half of that, you'd be less likely to put on a $50,000 to $100,000 addition. But people really aren't pulling back. People are still spending.”
In homebuilding terms, the U.S. Department of Commerce reports that the Northeast did not fare as well as the rest of the country this summer.
U.S. sales of new homes in July soared to a record 1.02 million units on a seasonally adjusted annual basis, according to the Commerce Department. That number represents a 6.7-percent increase over the June rate of 953,000 new units.
On a regional basis, new home sales were mixed in July. The Midwest and South recorded gains of 16 percent and ten percent, respectively, while sales were down nine percent in the Northeast and 0.4 percent in the West.
In Connecticut, 9,290 new housing units were authorized during 2001, less than one percent lower than the year before. But the average construction value of single-unit housing in the state increased from $162,845 in 2000 to $170,924 last year.
Total investment in authorized construction activity was an estimated $1.44 billion in Connecticut last year.
One in four households, or 28 million American families, spend more on housing than the federal government considers “affordable and appropriate” (30 percent of household income), according to the National Association of Home Builders (NAHB), and that burden is falling disproportionately on minority households.
The NAHB says nearly three-quarters of all white American households own their own homes, but less than one-half of African-American and Latino families are homeowners. President George W. Bush has set out to change that statistic. By 2010, he wants to see the number of minority homeowners grow by at least 5.5 million.
This may mean even more work for Connecticut's builders over the next seven years, especially in a market where the typical interest rate for a home equity line of credit for remodeling is 3.9 percent.
“It's incredible,” Ahern says. “You can borrow money as cheap as I've ever seen in my lifetime. You've got good rates and we're busy. The New Haven economy is good, as far as I'm concerned.”
Ahern adds: “And with home equity in general, you're gaining a lot in appreciation. House prices have gone up substantially. I'm not a gloom-and doom guy, but if one part of the market were down, I'd tell you.”
That's not to say Connecticut's construction industry is without its problems. As Wiedenmann describes, there's a demand for new homes that can't be satisfied because the approval process at the municipal level for subdivisions has grown so complicated.
“We can't get the property approved for building, so what's there is really strained,” Wiedenmann reports. “It's a fact of supply and demand. We just can't keep up with it.”
Only about 20 percent of Connecticut land is developed.
“You think of us as being a highly developed state, but it's really not that developed,” Wiedenmann says. “There's plenty of land available. Certainly towns and the state buying up open space has some effect on what's available.”
Towns have been buying a good amount of property to designate as “open space” in recent years - and that's fine as long as they're buying to protect natural resources, say builders.
“But there are some towns that seem to be buying land just for the sake of stopping development and that causes everyone else to jack up prices for what is available,” Wiedenmann says. “Just as supply and demand is an issue in home buying, when landowners decide to sell, that's going to factor in their prices too.”
He adds: “That's another reason you're seeing a lot more larger houses. If you start paying top dollar for land, it's hard to build affordable housing on very valuable, expensive land.”
While aggressive development took place throughout the 1980s in municipalities such as Wallingford, North Haven and Hamden, now builders are looking at places like Cheshire and east of the Connecticut River - searching further afield until they find land that's available and a town that will approve their proposals.
“Some of the other towns don't want to give you the density that you should have,” says Wiedenmann. “When you have water and sewers, there's no reason to be building on one- to three-acre lots, but some towns require that. Wallingford has a lot of land that's zoned for three acres.
“My feeling is that if you have water and sewer, there should be no reason not to have lots a half-acre or smaller,” he adds. “In other parts of the country, half-acre lots would be considered huge. They build some very expensive houses on quarter- and half-acre lots.”
Another issue is labor. There exists a severe shortage of plumbers, carpenters and electricians, according to Wiedenmann, who notes that simply just aren't enough people working in the trades to meet demand. And there is no apparent relief in site.
“A lot of people got out of the building business in the late 1980s and the early 1990s when things slowed down,” he says. “They either got into other businesses or left the area altogether. We have people calling us every week, wanting us to [build or remodel] now, but I tell them they may have to wait until next spring.”
Industry-wide, consumers have a hard time finding and hiring laborers, Wiedenmann notes. “Phone calls aren't returned, or they decide they don't have time or it's not a job they're interested in. People are being very selective. It's understandable from a business perspective. You're going to take the jobs that are most profitable, or least likely to cause any problems.”
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
