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VOL. 129 | NO. 137 | Wednesday, July 16, 2014

Uphill Climb

Lot shortage has builders struggling to keep pace with 2013

By Amos Maki

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Shelby County’s homebuilding industry is off to a slow start in 2014, with builders filing 16.6 percent fewer permits in the second quarter than in the same three-month period a year ago.

Poor weather, a lack of lots and some uncertainty have combined to get Shelby County’s homebuilding industry off to a slow start in 2014, with second-quarter permits down 16.6 percent compared to 2013. 

(Daily News File/Lance Murphey)

Builders filed 245 permits in Shelby County in the second quarter, compared with 294 permits in the second quarter of 2013, according to real estate information company Chandler Reports, www.chandlerreports.com. Builders filed 191 permits in the first quarter.

A severe lack of developed lots is slowing the construction of new homes, said Kim Grant Brown, president of the West Tennessee Home Builders Association.

“The lot shortage in Shelby County is having a major impact on second quarter permits,” Brown said.

Homebuilders have been issuing warnings about the lot shortage for months, saying local and state governments, lenders, homebuilders and developers should come together to find a solution.

“The premium lots that were available have now been snatched up by a handful of builders,” Brown said. “The select few lots that are still on the market are not what buyers would consider desirable lots, and the prices are continuing to escalate because of the shortage.”

The average size of second-quarter permits decreased 7 percent to 3,052 square feet from 3,281 in 2013. The average price decreased 9.7 percent to $247,701 from $274,511 in the year-ago period.

The top homebuilder in the second quarter, as tracked by the number of permits, was Regency Homebuilders LLC (56 permits, averaging 2,781 square feet and $200,160). Kevin Hyneman tallied the second-highest number (33; 2,047 square feet; $152,800), and Grant Homes came in third (22; 2,950 square feet; $216,040).

The subdivisions notching the most permits in the second quarter were Fountain Brook in Cordova North’s 38016 ZIP code (14; 2,508 square feet; $154,522). St. Andrews Place in Cordova North’s 38016 ZIP code recorded the second-highest number (12; 1,874 square feet; $105,750) and Peppermill in the 38018 ZIP code was third (11; 1,864 square feet; N/A).

Through the first six months of the year, builders have pulled 436 permits, down 17.6 percent from 529 permits pulled over the same period last year.

Brown said the winter weather that lingered over the Memphis area during the first few months of the year and a rainy June made it difficult for crews to work outside and caused some potential buyers to stay indoors, leading to a drop in permit and sales activity.

“I think the weather has played a huge role in the drop in permits this year over last year,” Brown said. “January and February were frigid, and then we follow that up with one of the rainiest Junes we have had in a very long time. It was near impossible to build anything with it raining every other day.”

Charles Morgan of Vintage Homes LLC agreed that the lots and weather had been a factor this year but also said some people - with the housing crash still fresh on their minds and a large stock of rental housing available locally – may be avoiding making a long-term commitment to a new home.

“People might not be as wiling to make that commitment for a 30-year mortgage because there hasn’t been enough time since the crash for people to believe they’ll gain equity,” Morgan said. “Now, people who have lived through several of these recessions and seen them come and go, they know renting is not the way to go. They know over a period of time real estate is one of the best investments out there, especially when the market comes back.”

Builders sold 194 homes in the second quarter, up 23.6 percent from 157 homes during the first quarter but down 22 percent the 294 homes sold in the second quarter of 2013. The homes sold in the second quarter averaged $265,983 with a total sales volume of $51.6 million.

The top builder for sales in the second quarter was Regency Homebuilders LLC, with 48 averaging $238,924. Kevin Hyneman sold 22 homes averaging $159,802, and Grant Homes sold 13 homes averaging $246,328.

Homebuilders entered 2014 with optimism after the industry showed signs in 2012 and 2013 that it had finally begun to recover from the housing bust and recession.

Homebuilders filed 870 permits in 2013, down 5.2 percent from 918 permits filed in 2012, but still far above the 698 permits filed in 2011.

Despite the sluggish start to 2014, Brown said the market could still end on a positive note.

“I think permits will end up close to where they were last year,” she said. “All of the indicators show that consumer confidence has increased dramatically since 2008. This should hopefully translate into more new home sales in the second half of the year.”

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

PROPERTY SALES 51 328 20,960
MORTGAGES 58 387 24,132
BUILDING PERMITS 170 842 43,435
BANKRUPTCIES 50 288 13,468