Challenging times: Home builders struggle waiting for recovery
Last year was nothing to write home about for the home building industry in the Grand Valley, but it looks good compared to this year.
“The recovery is being delayed,” says Annette Miller, who, as senior vice president of Heritage Title Co. in Grand Junction tracks the real estate industry. “I see it being pushed back until 2014. You’re not going to see it in 2010.”
The numbers don’t look promising for home builders. Through the first seven months of the year, Mesa County issued 217 permits for single-family homes. That was nearly a 9 percent drop from the 238 permits for the first seven months of last year. For July 2010, the county issued 24 permits — 40 percent fewer than the same month last year.
Reasons for the downturn — along with the warning from Miller — are similar to the reasons cited for falling home prices in the Grand Valley.
The effects of the Great Recession have people wary of spending money, even if they have it. Those who need a loan to purchase a home are afraid of getting into the same boat as people who found themselves upside down during the recession and owing more on their homes than they’re worth in the midst of falling prices.
In fact, Grand Junction is making news for being in worse shape than cities elsewhere. While 21 percent of mortgages nationally were “under water” as of July, the number in Grand Junction was 31 percent, according to the real estate Web site Zillow.com.
The median sales price of a three-bedroom home in Mesa County fell more than 10 percent to $185,300, from the first half of 2009 to the first half of this year, according to statistics compiled by the Grand Junction Area Realtor Association.
What’s more, the foreclosure scene continues to worsen. Foreclosure sales for the first half of this year totaled 536, more than four times the number during the same period in 2009. Meanwhile, 767 foreclosure filings were reported the first half of 2010, a nearly 75 percent increase over the first half of last year. Local real estate analysts believe even more families are on the verge of foreclosure and perhaps even bankruptcy.
The situation has home builders in a tight spot, yet they continue to build homes because people order them. While new census data won’t be available until next year, many local analysts assume the Mesa County population is still growing.
Just as real estate agents remind their clients a depressed economy can offer a good opportunity to purchase at reasonable prices, builders make the same pitch to people thinking about new construction.
“Subcontractors and builders are competitive with costs,” says Rob Griffin, president of Griffin Concepts in Grand Junction and president of the Housing and Building Association of Northwestern Colorado. “Lot pricing has bottomed out and there are historically low interest rates.”
Griffin says it’s helped being a member of the HBA, which provides updated information and helps builders network. Still, he says there are virtually no new homes under construction apart from those ordered by new owners. Spec homes are no longer springing up around the valley, as they were in 2007 and 2008. In fact, subdivisions that include spec homes have been fighting the foreclosure bug, as builders find it difficult to hang onto homes without seeing hope for a return on investment in the near future.
One development company that is stepping into the spec home market is Matrix Communities, which plans a 20-unit development in The Ridges near the Golf Club at Redlands Mesa (see related story this page).
There’s some light at the transaction end of the real estate tunnel, which could portend good news for home builders in a few months.
The number of real estate transactions in Mesa County and their combined dollar volume for the first seven months of this year were both up about 1 percent over the same period in 2009. A total of 1,515 transactions were reported with a combined dollar volume at $360 million in the January-July period this year. The information was compiled by Bob Reece, president of Advanced Title Co., who told the Grand Valley Business Times the local real estate cycle remains “in the trough.”
Despite the marginal increase in sales, 2010 will likely go down as one of the worst local real estate years in the last two decades.
It’s a stark contrast to the period from 2000 to 2005, when local median home prices rose about 50 percent. For the 10-year period between 1999 and 2009, prices rose 68 percent in the Western Slope region — excluding mountain resort communities.
That was by far the largest percentage increase of any region in Colorado, according to a report issued by the Colorado State University School of Business. Mountain resort communities were second with a 43 percent increase over the same period. Statistics from last year indicate the mountain resorts saw the largest one-year drop in prices at 15.3 percent, followed by a 10.9 percent drop in the Western Slope region.
Builders face the same dilemma as many potential home buyers and business owners: banks are leery to loan money to people who don’t have the resources in hand to repay the loan. Griffin says financial institutions have essentially stopped lending for new construction projects that carry risk. “The only way to go is with private investment,” he says.
As is the case with many economic analysts, Griffin and some other local builders believe the November election will affect home building and buying.
“ If we get people (elected) who are more business-oriented, we’ll see the confidence improve,” Griffin says. “Hopefully, we’ll get away from a government-based scenario.”
While builders await the outcome of the elections, they also look for opportunities to keep hammers pounding and backhoes moving in the midst of a local economy showing signs of modest recovery.