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VOL. 124 | NO. 73 | Wednesday, April 15, 2009

Q1 Data: All Quiet on the Homebuilding Front

By Eric Smith

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When an industry slows down dramatically, it’s often said its business comes to a screeching halt. The demise of local homebuilding can’t exactly be summed up that way because it implies some kind of sound is being generated.

As it stands, homebuilders hardly made a peep in the first quarter of 2009, pulling just 34 permits for new homes in Shelby County, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com. That’s roughly one new home start every three days during Q1, a 35-year low for the industry in Shelby County.

Builders pulled 15 permits in January, eight in February and 11 in March. The quarterly total marked an 88.4 percent decline from 294 permits in Q1 2008 and a 95.9 percent decline from 830 permits in Q1 2007.

“That pretty well sums it up,” said Stephen Hodgkins, owner of Oaktree Homes LLC and president of the Memphis Area Home Builders Association. “We’re still in a pinch and there’s no building going on right now.”

The main squeeze

As Hodgkins pointed out, when Habitat for Humanity ranks anywhere near the top among the leaders for building permits, as it does some months, everything about the industry is askew.

“That gives you an indication of what we’re going through,” he said.

What homebuilders are going through is painful, to say the least. Only two subdivisions, the neighboring St. Andrews Place and Carlyle Place in Cordova, saw more than two building permits filed during the quarter. Six other subdivisions notched two apiece.

And only two builders, Vintage Homes and Compass Point (both of which build in the previosly mentioned subdivisions), pulled more than two permits. Vintage Homes filed eight permits and Compass Point filed four, according to data for which permits were available. Grant Homes landed in third place with a pair of permits during the quarter.

“It’s still tough,” said Vintage Homes owner Charles Morgan. “It’s still not good for homebuilders out there in terms of trying to create velocity. This is a good time for you to be shoring up your operations … because we’ve got more time than we did before.”

Builders continued focusing their efforts on reducing inventory to begin 2009, and while sales outpaced starts, sales were still sluggish because of economic uncertainty and job losses, as well as foreclosures taking a larger percentage of overall home sales.

Homebuilders sold 75 homes in Shelby County during Q1, down 78.3 percent from the 345 sold in Q1 2008 and down 88.2 percent from the 635 sold in Q1 2007. Builder sales averaged $278,764 last quarter, up 4.5 percent from $265,834 in Q1 2008 but down 2.8 percent from $286,911 in Q1 2007.

Also, the total sales volume in terms of dollar amount was $20.9 million, a 77.2 percent decline from $91.7 million in Q1 2008 and an 88.5 percent decline from $182.2 million in Q1 2007.

Reset button on

The top sellers during the quarter in terms of number of sales in Shelby County were Barry Watson Homes (seven sales averaging $198,507 and totaling $1.4 million); Vintage Homes (five sales averaging $156,399 and totaling $781,995); and Affinity Homes (three sales averaging $368,078 and totaling $1.1 million).

Looking forward, the building industry appears conflicted about the $8,000 homebuyer tax credit handed down in the American Recovery and Reinvestment Act of 2009.

While it’s a good concept, many builders said they believe the program isn’t enough of an incentive for potential buyers because it doesn’t provide the money at closing. Instead, the $8,000 is returned during tax season, so first-time buyers will still have to come up with a down payment.

That said, there is a glimmer of hope, noted Phil Chamberlain of Chamberlain & McCreery, who has seen an uptick in tire-kickers during these first few weeks of spring.

“I think everybody feels a little bit encouraged because of the amount of traffic we’re seeing through the subdivisions in the models now,” he said. “Our traffic has doubled, at least, which is not saying much, but that’s the very first place that our market is going to see a difference – traffic numbers through the model homes on a week-to-week basis.

“Obviously, the next step is for that to convert to sales.”

Barry Watson of Barry Watson Homes LLC isn’t sure they will. Watson, who said he is typically upbeat amid the doom and gloom, worries that the dried-up credit market will stifle customers’ ability to borrow, further delaying a builder comeback.

“I’m a little discouraged in that there’s a need out there that can’t be met because there’s not enough credit out there from the banks,” he said. “There is a lot of people wanting to buy new homes. It seems that the biggest roadblock is everybody being able to qualify for the loan.”

No matter what happens the rest of the year in the industry – whether sales and starts turn upward – builders agreed that speculative building, especially for pricier homes, is gone for a long time.

“I believe from now on, the homebuilding industry in Memphis will be primarily a pre-sale industry in that you just won’t see the speculative building that you used to,” Watson said. “I don’t know that you ever will, and if you do it will probably be a decade or two away.”

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

PROPERTY SALES 57 94 2,713
MORTGAGES 16 37 1,820
BUILDING PERMITS 303 621 6,322
BANKRUPTCIES 138 138 1,115