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VOL. 126 | NO. 38 | Thursday, February 24, 2011

Builders Struggle to Turn ‘Lookers’ Into Buyers

By Sarah Baker

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While Shelby County builders filed just 24 permits last month – a 41.5 percent decrease from 41 permits in January 2010 – industry professionals are confident the numbers will be corrected by the close of the first quarter as the weather improves.

Permits averaged 3,803 square feet and $243,994 in January, compared with the January 2010 averages of 3,353 square feet and $270,992, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

Charles Morgan, owner of Vintage Homes LLC, led the county last month with six new permits that averaged 3,255 square feet and $216,519.

Morgan was followed by Phil Chamberlain of Chamberlain & McCreery Inc. with four permits averaging 3,609 square feet and $135,000.

“I think our market has stabilized on real estate values, the biggest thing left is unemployment,” Chamberlain said. “The second thing is that a lot of builders were getting some additional volume and starts through the tax credit that was offered in the first quarter last year.”

The positive news, Chamberlain said, is traffic through model homes, while slow during November and December, doubled in January and held steady in February.

“We’re not getting more contracts yet, but we’re getting more lookers,” Chamberlain said. “The average homebuyer today looks and considers for a little longer period than they did in the early part of the last decade. It’s going to take a little time.”

One of Chamberlain & McCreery’s main objectives is to be more user-friendly by using smart phone-friendly QR (quick response) codes and constantly ramping up its website for the young professionals that will begin to buy as the market turns around.

In this economy, Chamberlain said, it’s crucial that homebuyers stay competitive and connect to their customer base.

“As a culture, we are learning to be much thriftier, so we’re trying some of the bells and whistles that were in the houses in 2004 and 2005 and use that same dollar amount to be much more practical,” Chamberlain said. “We’re researching electric car plug-ins – the houses that we produce now we need to make sure that we’re not far behind.”

Home sizes and price points have been a mixed bag over the past few years. Pricing, especially, has seen a ripple effect, said Don Glays, executive director of the Memphis Area Home Builders Association.

“Federal Housing Association mortgage limits are at $271,000, so generally that’s going to bring down those home prices, compared to a few years ago when the conventional Freddie and Fannie mortgages were a lot easier to get,” Glays said.

The top subdivision in January was Gerland Creek in Southeast Shelby County’s 38125 ZIP code, which saw six permits that averaged 3,255 square feet and $216,519. It was followed by The Vinings at Germantown, a 63-lot development off Winchester Road in 38138 (three, 5,073, $313,843).

Builders in January sold 46 homes, a 16.4 percent decline from 55 homes sold in 2010 and a 15 percent decline from 54 homes sold in 2009.

January’s builder sales averaged $235,951, up 4 percent from $226,907 in January 2010, but down 16 percent from $280,333 in January 2009.

But even though sales are down, they continue to outpace starts, meaning inventory is dramatically depleting.

“Very few new lots are being brought on stream, and the reason is the high cost of infrastructure, and the fact that developers and builders are finding it very difficult to get acquisition and development loans from banks,” Glays said. “I’ve talked to a dozen developers and builders in this Memphis market area who have A-1 credit, who’ve never defaulted on a payment, never missed a payment, and they can’t get a loan today.”

And tight lending goes back to jobs. In 2005 and 2006, there were 2.2 million housing starts and more than six million people directly employed in the United States’ new home construction industry, Glays said. Last year, with 400,000 housing starts, there were slightly more than a million people employed in the industry.

But the good news is that 2010 almost doubled 2009’s permits, and both Glays and Chamberlain are optimistic that trend will continue.

“What I’m hearing from the national forecasters is that third to fourth quarter of 2011 are supposed to show some significant increases in sales and permits, with 2012 firmly putting us in the housing recovery,” Chamberlain said. “I would expect that we see some increases in second quarter.”

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

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MORTGAGES 89 414 9,199
BUILDING PERMITS 197 1,007 16,607
BANKRUPTCIES 45 279 5,406

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