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VOL. 126 | NO. 91 | Tuesday, May 10, 2011

Builder Struggles Continue Into Spring

By Sarah Baker

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As permits decline and construction costs rise, local builders urge prospective buyers to act now before the price of new homes continues to climb.

Shelby County builders filed 46 new home permits in April, a 58 percent decrease from 111 permits in April 2010, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

But last April was when the homebuyers tax credit expired (sales had to close by June), resulting in a surge of pulled permits, said Keith Grant, president of Grant & Co.

“It’s not shocking that permits are way off,” he said. “We actually have a shortage of new homes in the market right now. If you drive anywhere around, there’s no standing inventory.”

The biggest challenge, Grant said, is that a lot of builders are not getting construction loans and banks are not financing builders. This, in turn, is taking a toll on smaller homebuilders’ operations.

“The permits have gone down, but there’s still a desire there, it’s just that builders aren’t able to get financed to build the number of homes we were doing,” Grant said. “The smaller builders just can’t get any financing now and so they’re out of business. They can’t even start the homes and you can’t sell something that you never start.”

Despite last month’s plummet, the general attitude is positive, said David Clark, president of the Memphis Area Home Builders Association.

“The sentiment around the Home Builders Association is that things are improving,” Clark said. “Any homes we do see come up, a lot of them are custom homes. The builders that are out there building right now are going to see some improvement on that because there’s very little new home inventory out there to be had right now.”

Regency Homebuilders LLC led the county last month with 14 new permits that averaged 2,685 square feet and $185,775. Regency was followed by Charles Morgan, owner of Vintage Homes LLC (11; 1,956; $140,350), and Grant Homes (eight; 3,129; $199,939).

Permits averaged 2,899 square feet and $215,198 in April, compared with the April 2010 averages of 2,505 square feet and $183,141.

Last month’s price point uptick goes back to the fact that there’s very little new home inventory out there, Grant said.

“Construction costs have gone up about 3 percent already this year, so we’ve actually had to raise prices in some of our new neighborhoods,” he said.

The top subdivision in April was St. Andrews Place in Cordova North’s 38016 with five permits averaging 1,927 square feet and $133,527 each.

It was followed by two subdivisions in the same ZIP code – Gardens/Grays Creek (four; 1,976; $136,937) and Oaklawn Estates (three; 2,614; $181,150).

And in a depressed housing market, low and middle price points like those in Cordova and other areas is appealing to current homebuyers, Clark said.

“You can still get FHA (Federal Housing Administration) financing when it’s below $270,000, so anything that rate, that’s what’s helping the sales out there,” he said.

As far as builder sales, 42 homes were sold in April, a 46 percent drop from 88 homes sold in 2010 and a 62 percent decline from 104 homes sold in 2009.

April’s builder sales averaged $220,622, down 6.2 percent from $234,058 in April 2010, but up 1.3 percent from $217,691 in April 2009.

With raw materials ever increasing, Grant encourages potential buyers to execute now, so as to realize the most possible appreciation on their new home.

“There’s not even a three-month supply of new homes on the market right now, yet there’s probably a nine- or 10-month supply of existing homes on the market,” Grant said. “As the economy strengthens and the job market comes back, you will eventually see it turn into more of a pre-sale market and that’s what will actually drive the increase in permits.”

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

PROPERTY SALES 71 233 2,852
MORTGAGES 74 171 1,954
BUILDING PERMITS 125 894 6,595
BANKRUPTCIES 34 206 1,183