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VOL. 124 | NO. 137 | Wednesday, July 15, 2009

Q2 Building Permits Continue Downward Trend

By Eric Smith

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RARE VISION: Crews build a home in Cordova’s Glen Lakes, one of the few subdivisions in Shelby County that has seen much activity. -- PHOTO BY ERIC SMITH

The homebuilding industry in the mid-2000s distinguished itself through a record-setting pace – each year it seemingly topped the previous one in terms of housing starts.

Now, the converse of that is true as builders consistently set new lows because of the ongoing housing crunch and credit crisis.

Builders filed just 90 new home permits during the second quarter (April through June), a 64.4 percent decline from 253 permits filed during Q2 2008 and an 89.7 percent decline from 872 permits filed during Q2 2007, according to the latest data from Chandler Reports, www.chandlerreports.com.

It’s the slowest second quarter since 1974, dating as far back as Chandler Reports data go.

“You don’t see a lot of fresh lumber going up in the air,” said Jerry Gillis of FaxonGillis Homes. “But at the same time, there’s still houses being started. The numbers that we had in 2006, when we hit 9,500 permits in the five-county market, that’s not sustainable. That was a false market with the subprime mortgages available and people qualifying that shouldn’t have been able to qualify. We’ve got to get back to a sustainable market.”

Down to earth

Getting back to a sustainable market has proven difficult for local builders, many of whom have ventured to surrounding counties where building hasn’t lagged to quite the same degree.

Only one builder, Charles Morgan of Vintage Homes, reached double digits in Shelby County with starts during Q2, with 14. Vintage Homes’ permits averaged 2,288 square feet and $175,217 in average value.

Morgan was followed by Kevin Hyneman (seven starts at 1,699 square feet and $136,571); Grant Homes (seven, 3,337, $407,559); and Phil Chamberlain (six, 3,270, $165,667).

The Villages at White Oak in Arlington was the most active subdivision during Q2, as builders there started eight homes at 3,244 square feet and $180,707.

The Villages was followed by Sutton Place in Cordova (seven, 1,699, $136,571); Elpine Gray Estates in Bartlett (five, square footage not available, $569,238); Rivercrest in Bartlett (five, square footage not available, $168,000); Glen Lakes in Cordova (five, 1,881, $159,470); and Ellendale Manor in Bartlett (five, square footage not available, $130,000).?

Stephen Hodgkins, president of the Memphis Area Home Builders Association and owner of Oaktree Homes LLC, admitted that the Q2 data were underwhelming to say the least.

“It’s nothing really earth-shattering,” Hodgkins said. “We don’t feel like now’s the time to start a bunch of houses. I think as builders we’re still being pretty conservative.

“It’s kind of a waiting-out process and hopefully we’ll get the rest of the foreclosures cleaned out. I think it is being cleaned out, and the excess inventory is being absorbed and we’re doing the right thing. We’re not there yet, but I would say we’re on the backside of a buyer’s market.”

Keep it simple

For a seller’s market to return, plenty of chips need to fall into place to eat up remaining inventory and get qualified consumers back to the buying table. One program with a lot of potential is the $8,000 first-time homebuyers tax credit, the much ballyhooed incentive that would benefit builders indirectly.

If first-time homebuyers have an easier time getting into a house, the sellers they displace would be able to move up, a critical ripple effect for builders.

Some builders are even targeting first-time buyers, chiefly renters, with low-cost homes. Morgan’s company has spent the past couple of months marketing the tax credit as a “stimulus check,” because a few weeks after closing, the buyer receives an $8,000 check to buy furniture, put toward principal or make improvements to their home.

“It’s been enormous for us,” Morgan said of the marketing campaign. “It’s been one of the key things. Renters aren’t tax-code savvy. You’ve got to make it simple. You’ve got to put the message out in a simple manner and you got to keep the message constantly in front of the renter in order for them to understand, ‘Look, there’s some real credits out there for you today; don’t blow your opportunity.’”

Coping strategies

Keith Grant of Grant Homes was one of the top builders in Q2 and he, too, has seen some positive signs in the market. Grant normally starts a house when he sells one, but lately he has started a few speculative homes as a result of a stronger sales pace during the past few months, keeping about four to five spec homes in each subdivision where he builds.

“This is typical of the Memphis market with the exception of 2005 and 2006,” Grant said. “(Memphis is) typically a speculative market. When people do buy a home, they typically buy a finished home or one that’s close to completion that’s ready to move in within about 30 days.”

As for other builders, they have dealt with the downturn by focusing on sales. Or they have undertaken remodeling of homes, bidding on foreclosed homes or taking trade on homes to reduce inventory, in which they swap a newly built home for a buyer’s existing home plus cash.

No matter the means, homebuilders are committed to weathering the storm.

“I think it’s just holding on now and trying to seize opportunities,” Hodgkins said. “We like to say it’s not a bad market, it’s the new market. That’s what we have to realize. We can’t sit back and wait on things, expect things to get back to where they were, because that’s not going to happen. It’s difficult, but the ones that can cope are going to do well on the other side.”

Chandler Reports is a division of The Daily News Publishing Co.

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