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Archive for Friday, February 7, 1992

LOW INTEREST RATES SPUR HOME BUILDING

February 7, 1992

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Driven by the lowest mortgage interest rates in nearly 20 years, Lawrence home builders set a record last month for the number of permits for single-family homes taken out in January.

The city building inspector's office issued 41 permits for new single-family homes during January, the highest number on record for the first month of the year. The valuation of that home construction topped $3 million.

The only January on record to come anywhere close to last month's number of permits was in 1988, when the city issued 32 permits for new single-family homes. A year ago, just four single-family permits were issued in January.

"That's what we're doing in Lawrence, Kansas, this month, folks," Gene Shaughnessy, the city's chief building inspector, said of the single-family boom.

"I think it's a combination of factors," Bob Santee, president of the Lawrence Home Builders Assn., said of the housing industry's record activity in January.

He noted, however, that "there's no doubt about it" that interest rates played the most significant role in spurring new home construction.

"THE INVENTORY has been corrected, so to speak. It had gotten within reason. And then with the interest rates, people are out shopping," Santee said.

"You can buy $75 a month more house than you could a few years ago. That makes a difference to a lot of people. It goes a long way."

The total valuation of new construction authorized during January was $4,359,982, with new home construction accounting for $3,125,506 of that amount. A permit's valuation represents the estimated costs of construction, excluding the cost of the land.

Santee said interest rates were so important because they reduce not only the monthly costs for the home buyer but also cut the builder's costs of financing a project.

"It's just a real critical thing in the whole process," Santee said.

One of the things the low interest rates may have done for the Lawrence market is unleash pent-up demand, Santee said, noting that many of the permits represent custom homes people had been waiting to build until the economy improved.

HOWEVER, Shaughnessy said contractors still were doing a lot of building on speculation.

"I think probably with the spring market coming up, people want to have things ready to go," he said.

Another factor creating demand for new houses is a greater number of people from out of town looking to buy homes in Lawrence, Santee said. "We're starting to see more movement from Topeka and Kansas City again."

Santee said the relatively warm weather Lawrence enjoyed during January had a minimal effect on spurring new construction activity. Given the favorable market conditions, the homes would be built anyway, he said. "It only makes things go a little quicker."

Santee said local builders weren't likely to maintain the current pace of single-family construction throughout the year but that he did not think activity would grind to a halt either.

"I would consider it to be strong," Santee said of the 1992 outlook. "I would consider it to be one of our top years."

SHAUGHNESSY said the average valuation of the new homes authorized during January was $76,232. The valuations on only six of the 41 single-family permits authorized were $100,000 or more, with $40,000 serving as the bottom of the range.

Shaughnessy speculated that many contractors who were building on speculation were targeting first-time home buyers and others on more limited budgets.

"When you look at the price range, that's the range that people are interested and comfortable in buying," he said.

The $4,359,982 in total valuation for the month was the highest January total since the $5,198,226 reported in 1988. Last year, the January permit valuation total was $1,109,844.

The monthly total included no new commercial construction and Shaughnessy said that with the exception of a new 121,267-square-foot Wal-Mart store, which will be built on the 9.8-acre site at 33rd and Iowa this year, he knew of no large-scale projects planned in Lawrence.

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