Home permit activity held stable for the first quarter of this year compared with the same period last year, and local builders expect to see continued gradual improvement through this year and into next.
Samuel Ibarra works on a home at Woodlands of Cordova by Regency Homebuilders. Building activity in the first quarter this year was stable compared to the same period last year.
(Photos: Lance Murphey)
Overall activity from January to March inched out last year’s Q1 numbers, with 201 permits this year compared to 198 in 2012, according to real estate information company Chandler Reports, www.chandlerreports.com. The average size of homes was 3,183 square feet and average price was $228,991, compared to 3,275 square feet and $257,548 during the same time last year.
“The market has stabilized in Memphis,” said Don Glays, executive director of the Memphis Area Home Builders Association, who referenced Memphis’ inclusion on the Improving Market Index on the National Association of Homebuilders website.
“What that means is that a combination of economic factors has come together in the Memphis area in the past eight months that indicates that we are really coming out of the recession in the housing market,” Glays said. “We will probably end the year up about 20 percent over last year.”
Last month registered the best home activity of the past four years for the area’s volume builders, which typically translates into sales during the next few months and then construction in the summer months.
“We are expecting 1,100 home starts this year, or about a 20 percent increase over last year, and we expect a 23 percent increase for 2014. After that, all bets are off,” Glays said.
Interestingly, the average home price for permits pulled in Q1 dropped nearly 9 percent to a base price of $228,991. Glays sees a couple of main reasons for the drop.
“I think banks, on average, have tightened up credit, making it a little more difficult for people to get credit even though interest rates are extremely low,” he said. “People are qualifying, but they are qualifying for less money, which translates into people buying smaller homes at this point.”
He thinks many homebuyers are receiving loans within the FHA loan minimum of $270,000.
Several Mid-South areas are doing extremely well right now, including Collierville, Arlington, Bartlett, Germantown and DeSoto County.
A crew works on cornices and windows on a home at Woodlands of Cordova by Regency Homebuilders.
“Any new home built at the $500,000 price point in Germantown does not stay on the market for very long. It is a much sought-after community,” he said. “But Germantown is running out of lots, so there can’t be a lot of new home construction activity.”
He also sees promising activity in south Shelby County near Shelby Drive.
“There was a glut of pre-finished homes on the market in 2006 and 2007, and since that time a lot of those homes in that inventory dissipated,” said Glays, who believes many medium-sized builders now employ a “sell one, build one” to avoid excess inventory.
He sees several possible harsh realities to consider, like the fact that interest rates will not be this low forever and the lack of land development for new lots.
“Developers are running into some difficulties getting acquisition and development loans because many banks got caught in a land position they didn’t want to be in after 2007,” he said.
Glays thinks the market can get back to sustaining at least 3,000 new home starts per year (up from 900 starts last year), but he sees a potential lot shortage when and if that happens. The result would undoubtedly be higher home prices as lot prices rise.
Building material prices are also on the rise due to rising petroleum prices. One example is a builder in Fayette County who saw lumber cost increase from $9,000 to $15,000 over the past four years for construction of the same floor plan within the same subdivision.
Regency Homebuilders LLC filed the most permits in the first quarter of this year, with 54 homes averaging 3,058 square feet and $224,895. The next busiest builder was Grant Homes with 17 permits averaging 3,010 square feet and $200,652, followed by Charles Morgan with 16 permits for homes averaging 2,454 and $157,548.
“We are active in Shelby and DeSoto counties, and we’ve sold more homes in the first quarter of this year than we did last year,” said Keith Grant of Grant Homes, which sold 166 homes during 2012. “Our sales are currently up 15 percent to 20 percent, and we expect that to continue through the end of the year.
Grant is enjoying strong new home interest in Bartlett and Arlington, as well as DeSoto County and Olive Branch.
Chandler Reports is a division of The Daily News Publishing Co. Inc.