Archive for Friday, August 17, 2007

Building slump hits home

New housing construction slows

August 17, 2007

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National economy taking toll on home construction

The nation's financial challenges are taking their toll on home construction. Enlarge video

Brad Nichols, center, a carpenter with Culbertson Construction, works Thursday to secure wall supports of a home that he and his coworkers are building on Tucker Trail in northwest Lawrence. Home construction numbers in Lawrence are down, corresponding with a national trend. U.S. housing starts have reached a 10-year low, according to a federal report released Thursday.

Brad Nichols, center, a carpenter with Culbertson Construction, works Thursday to secure wall supports of a home that he and his coworkers are building on Tucker Trail in northwest Lawrence. Home construction numbers in Lawrence are down, corresponding with a national trend. U.S. housing starts have reached a 10-year low, according to a federal report released Thursday.

Tim Stultz, who builds homes for a living, watches as three big economic indicators - inflation, unemployment and mortgage interest rates - continue hovering at traditionally low levels.

Now, more than ever, he's left wondering why the city's long resilient home-construction industry has skidded to a career-long low.

"Since I've been building this is the slowest I've seen it," said Stultz, president of Highland Construction since 1991. "But we ought to be coming out of it - if people would just believe we're going to come out of it.

"Statistically, we're in a good market. People just need to believe it."

This week, two reports assigned gloomy numbers to the nationwide slide:

  • The Commerce Department said Thursday that construction of new homes nationwide dropped 6.1 percent last month to a seasonally adjusted rate of 1.38 million units, down 20.9 percent from the pace a year earlier and the slowest rate in more than a decade.
  • The National Association of Home Builders reported Wednesday that its barometer of builder confidence dipped by 2 points to 22 in early August, the lowest reading since January 1991, when the country was gripped by another housing downturn.

In Lawrence, people who follow the industry are finding themselves in unfamiliar territory. City Hall issued six permits for new single-family homes in July, the lowest in years and the latest in a string of declines that builders and those who depend on them are unaccustomed to.

"From 1990 to 2005, things were pretty much up, up, up, up, up," said Barry Walthall, building safety manager for the city's Planning and Development Services Department, which issues permits. "Over the past year, I can't make that claim. The numbers are obviously down."

For the past 12 months ending in July, the city issued 186 such permits, down 37 percent from the same period a year earlier and off 41 percent from a peak of 313 permits in 2003.

The decline affects more than builders. According to the Lawrence Home Builders Association, the number of homes built last year pumped $45.3 million into the Lawrence economy, through wages, materials purchases and spending in shops such as fuel stations, restaurants and dozens more.

Bobbie Flory, the association's executive director, said area builders normally could weather national dips in the housing industry because Lawrence's demand rarely sagged. But with builders having moved aggressively to meet market needs in recent years, they're finding that they have plenty of excess inventory on their hands.

"There's a correction being made," she said. "We're not adding fuel to the fire by continuing to build despite what's going on in the economy. What you're seeing - both in Lawrence and nationally - is that builders are responding. :

"They need to sell some of this inventory before we start adding back to it."

Even as consumer confidence wanes, the stock market drops, credit concerns persist and the financial effects of subprime lending spread, Stultz finds reasons to be optimistic.

Lawrence's construction activity has dropped, in part, because some builders have shifted their attention to work in fast-growing Junction City, he said. And buyers are starting to understand that values are out there to be found.

"It's the best time to buy in forever," Stultz said. "I think we're through the rough times, and we'll be climbing the peak again pretty soon."

Comments

atavism 7 years, 10 months ago

Maybe Tim Stulz should consider what is happening in the world economic markets as they divest themselves from their US based market share. The sub-prime mortgage industry subsidized an artificial boom in real estate. As 'buyers' default on their loans, the banks foreclose, but to recoup cash, the banks have sell them quickly and generally cheaply and thus at a loss. The for the production side of the real estate industry--e.g. builders--the surplus of already cheap homes should indicate that demand for new building will drop as any buyer with the ability to float a market-loan (not tied to the sub-premium based lenders) would more likely be able finance a cheaper, fire-sale house than a new build.

The fundamental problem lies with unsupportable, unsustainable growth financed through ficticious capital (thought not in the Marxian sense). Lending money to a bunch of people who won't be able to afford it, and then attaching difficult, if not impossible terms, will almost always lead to defaults on the side of the borrowers and losses on the side of lenders as they essentially throw money away. From the perspective of logic (at least defined by almost every economic theory since the Enlightenment) sub-prime mortgages are like a Wookie in the court room--it makes no sense.

Tim Stulz's situation has less to do with Western Kansas farmers (who are subsidized from a completely different economic sector and whose relationship with eastern Kansas is nothing more than an oft invoked political gambit) and more to do with small-scale greedy banks who lent money at extremely unfavorable rates as an attempt to turn a big profit--the Times ran a story on the Remax group yesterday that analyses the dynamic between small, generally Middle-west based lenders and the massive coastal and international finance industry who buy and sell them to support what has been termed, oxymoronically (sp?) their 'high-growth' hedge funds.

But then again, I'm only a London based political-economist. What do I know?

Richard Heckler 7 years, 10 months ago

Most all of the above comments have been verified for several months if not at least a year in so many news publications indicating the boom is over. Lawrence paid for it in a big way with lots of property tax dollars based on inflated values of Lawrence homes. It has become a buyers market nationally from what I read which means some owners may not be able to sell for what is owed on the mortgage.

Another problem the Lawrence market may feel is the crummy construction practices which have permeated the Lawrence real estate industry. Sooner or later this will catch up. Who wants to buy a new home that is 50 years of age and never been occupied? The dry rot,new siding replacement on 4 year old homes,low grade construction supplies,replacemement of windows on $600,000 homes after five years due to dry rot and framing not on 16" centers. This is what rehab carpenters are talking about. Unskilled south of the border construction crews and "home builders" who have never hammered a nail is the talk of the day.

It seems to me local government should move their focus to rehabilitation of older existing infrastructure and forget about taxpayer supported new projects such as North Lawrence and K-10/farmers turnpike which will not pay back anytime soon simply because from what I read this artificial boom that was created is a long long way from peaking .

It's time to step outside of the local glass houses and check reality.

nekansan 7 years, 10 months ago

Lets not forget that the city has missed numerous opportunities to bring jobs to town and have also drug their feet on infrastructure improvements that would attract commuters from surrounding areas that have been successful in attracting new major businesses. The end result is people don't want to fight the crummy roads, higher home prces and increased commute time to benefit from what does make Lawrence nice.

Haiku_Cuckoo 7 years, 10 months ago

Today's construction methods are shoddy. A ready-made particle board and vinyl sided unit simply isn't worth $300,000. Better to buy a classic home and fix it up.

Sean Livingstone 7 years, 10 months ago

Honestly, real estate boom and slump start with common people like us. If we buy rationally, sell rationally, and not think of our first home as an investment, but a home, nothing like this would have happened.

oldgoof 7 years, 10 months ago

How many building permits were issued in Graham County Kansas annually in the last 5 years.

Lets start talking about what is going on in the Kansas economy. We people in Douglas County who expect all the farmers in Western Kansas to support our economy need to think this through.

Tony Holladay 7 years, 10 months ago

"But we ought to be coming out of it - if people would just believe we're going to come out of it."

Keep on believing Tim! LOL That is about the stupidest statement.

"Lawrence's construction activity has dropped, in part, because some builders have shifted their attention to work in fast-growing Junction City, he said."

Bull! People aren't buying. Bottom line! A few of the Builders AND Subcontractors are just going where there is work.

Sagecasey 7 years, 10 months ago

Centurion,

Tim is right. If people don't believe it, then everyone cuts their spending back regardless of whether it affects their personal budget. Lawrence is a high real estate market, but expansion is a necessary item. Unfortunately, the "living wage" is not something that has caught up to the Lawrence "living expense".

samsnewplace 7 years, 10 months ago

I'm with cuckoo, better to have an older, well-built home and upgrade than buy a new one and be twice to three times the cost and half the workmanship and pride the older generation had. There was a day when men took pride in what they built, they used quality product and built it to last and be there for a lifetime.

Kat Christian 7 years, 10 months ago

GOOD - we have enough houses built as is. People need to learn how to take care of the ones that already exist. Realtors or whoever determines price of a house need not be so greedy so more people can afford to buy houses. We need to conserve as much land and trees as much as possible otherwise this planet is going to die if it hadn't began already with global warming. I know that building isn't the sole reason for this but the more we cut down our forest and natural habitats we harm this earth. We have enough dwellings for people if there wasnt' so much greed for others to have them. So GOOD I hope it stays this way.

Bubbles 7 years, 10 months ago

This should make merrill very happy.

Realtors do not set prices. The market does.

Richard Heckler 7 years, 10 months ago

"Bubbles (Anonymous) says: This should make merrill very happy.

Realtors do not set prices. The market does."

Are you saying that the local real estate industry execs did not participate once they discovered homes could be sold in 24 hours or less no matter the location? Even for crummy built homes of the past 30 years? Perhaps not all but too damn many. How does a buyer know one from another when price does not guarantee quality?

Market price does not need to be reflected in county assessment for the sake of raising taxes unless bad decisions were made during the bogus expansion of the tax base which instead has steadily increased taxes. Now many homes will be valued down so other taxes,fees etc etc will be or have been increased. It is on the horizon.

Richard Heckler 7 years, 10 months ago

Of course buying homes during a "boom" time historically is not the best market to shop. Some will learn this if they need to sell a home in which the selling price will not cover the mortgage.

toefungus 7 years, 10 months ago

The home market must be really bad here. For I don't know how long, a house has set on a couple of I-beams and wheels at Baldwin, Junction. I guess they are moving the house to Junction City, but waiting for traffic to slow up a bit.

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