Building the foundation of recovery
With the Grand Junction economy looking up, real estate expected to follow trend
Special to The Business Times from Vectra Bank
While slower in its recovery than the rest of the state or the country, Grand Junction’s economy is brightening. Even in an election year, when legislative decision-making grinds to a halt, and with the ongoing European and U.S. debt crises, the country’s economy overall is growing. Grand Junction’s economy is following that positive trend.
An Economic Snapshot
Positive growth in the Real GDP—to the tune of a 1.5 percent increase in the second quarter—and decreased unemployment are all factors in a strengthening economy. The GDP, Gross Domestic Product, is the output of goods and services produced by labor and property located in the US. As a percent of debt, the GDP provides context for the federal debt as it relates to the economy. The GDP gives us an insight to assessing recession risk and recovery potential. A healthy economy averages a real GDP of 3 percent, and the U.S. economy was expected to grow at a rate of about 2 percent this year. While the lowest GDP in the state at range of minus 3.8 to 3 percent compared to the Denver area’s 4 to 14.4 percent range, Mesa County’s GDP is improving.
Unemployment is down another percent across Colorado to 8.2 percent, although Grand Junction’s unemployment still comes in at 9.3 percent. While still high, in July unemployment was .4 percent lower than a year ago the same month. As of July 2012, the total MSA labor force was reported at 81,394. That is a 1.4 percent increase from July 2011.
Despite slow growth, sales tax is going up in Grand Junction as well. In May 2009, the area was low at minus 14.9 percent, bumping up to 3.4% in April 2012. More tax revenue means more government services and government real estate projects as well.
Real Estate On the Rise
These incremental improvements have led to increased consumer and business confidence around Grand Junction and that confidence is what drives real estate. In fact, for the first time since 2008, Grand Junction is seeing new residential construction. After taking a few years to work through the glut of housing, inventory is so low new construction is on the rise.
According to the Grand Junction Economic Partnership and the City of Grand Junction, 28 permits for new construction were issued in May. The majority of permits issued are for residential construction.
Planning clearances are the number of residential homes in the city that will be applying for a building permit through Mesa County. The City of Grand Junction issued 143 planning clearances for single and multi-family units in the second quarter of 2012. This is a 22 percent increase from the second quarter of 2011.
What That Means for Home Builder Lending
Right now, Vectra Bank in the Grand Junction area is considering taking on new home builders and lending for residential construction projects has increased. Builders able to survive the economic downturn are able to come back more quickly by capturing builder financing in a market with less competition. Vectra Bank Colorado, for example, has already seen a 450 percent increase in loan commitments to residential developers over last year in the Denver area.
Homebuilders that endured have become stronger by eliminating debt, strengthening balance sheets and diminishing land debt. Builders that were able to finance building projects out of their own pocket have become that much more attractive to banks that are ready to lend.
Legislatively mandated, homebuilder lending—like all bank lending—is more conservative now. Instead of 100 percent loan-to-cost, most banks will only lend at 85 percent loan-to-cost and 75 percent loan-to-value. Builders will not find as much land or paper lot financing available through banks, but are turning to private equity sources at slightly higher rates for those expenses. Not surprisingly, builders who had to give any properties back to the bank will have a tougher time acquiring bank financing. That being said, homebuilders who approach a financial institution with a strong financial package and credible explanation of how they survived the downtown may find them to be more receptive.
Especially after the elections Vectra Bank in Grand Junction expects an active 2013, as companies holding on building or equipment expansion begin to move forward.
Kirk Monroe, Vectra Bank Colorado Executive Vice President, Wholesale Banking Director
Carol Skubic, Vectra Bank Colorado, Senior Vice President, Market President, Grand Valley/Montrose