Changes in Local housing market

Local housing market improving?
September 18, 2009 by Al Harris
Move over, McMansion.
The home-building industry is starting to emerge from deep hibernation. And some builders around town say it’s the smaller homes that people will want to buy.
Between June and August, Chesterfield County issued 236 permits for single-family homes, only three less than was issued during the same three months in 2008.
That is in stark contrast to the previous three months, March through May, when activity was half of what it was in 2008, suggesting that the market might be starting to turn.
Still, for the year to date (excluding September) Chesterfield issued 456 single-family permits, compared with 691 issued through the same time last year, or a 34 percent decline.
And for the most recent months, new home permits in Chesterfield fell from 93 in July to 75 in August. Both months were better than 2008, when 77 permits were issued in July and 61 in August. That is still way off from three years ago, when 155 new home permits were issued in August 2006.
Across the river in Henrico, there were 51 single-family permits issued in August, down 29 percent from July, when 72 permits were issued.
Both months were a vast improvement from April, when only 37 were issued.
And yesterday the U.S. Department of Commerce released improved figures for the nation — in August, new construction of homes and apartments rose 1.5 percent nationwide from July, a total of 598,000 homes, the highest level in nine months.
But the construction of single-family homes fell in August, reaching a total of 479,000. Compared with last August, single-family home construction is down more than 29 percent.
So what’s behind the new activity?
David Reel, the executive vice president of the Home Building Association of Richmond, said that it got so bad it really had no where else to go but up.
“Inventory had been drawn down, nothing was being built for the longest time,” said Reel. “Eventually the supply and demand curve started catching up with itself.”
He said housing is poised to make a comeback, but he envisions major changes in how and where homes are built.
“What people will be building and developing will change dramatically,” said Reel. “You’ve got the tail end of the baby boom generation downsizing, and you have echo boomers coming in who either don’t have children may not ever have children. Both of those groups are simultaneously looking for much different housing than we have seen in the past.”
Reel anticipates a mix of housing that has smaller floor plans, single stories and locations closer to the urban core.
Vernon McClure, owner of Main Street Homes, said he is starting to see some of that shift.
“We’ve had to bring out the 2,400-square-foot plans and dust them off and not build as many of the 4,000-square-foot plans,” McClure said.
Building smaller houses has shaved about $100,000 from the average sales price of McClure’s homes. He said the demand for smaller houses is also tied to consumers being thriftier since the economic downturn began.
“Homebuyers are asking ‘Do I need five bedrooms, or is four enough?’ or thinking, ‘Maybe I don’t need a study and a living room,” McClure said.
McClure, who estimates building about 70 homes in Chesterfield this year, said several factors are leading sales including low interest rates, lower prices, and the federal $8,000 first time buyer tax credit.
The credit expires at the end of the year, McClure said about 10 percent of his homes sales this year have been driven by the tax incentive. But now that program is drawing to an end, McClure and other homebuilders are concerned that demand could fall again.
“There is concern that it may have pulled some of the demand forward. If it goes that way, we’ll hit another slow period,” said McClure.

Time Running Out on Buying with Federal Tax Credit

To be eligible for a tax credit of up to $8,000, first-time homebuyers have until the end of business on November 30, 2009, to close their loans. There has been discussion that some members of Congress want to extend and increase the homebuyer tax credit. It remains to be seen if an extension or enhancements will be made.
Historically, it has taken 45 to 60 days to close a loan. However, new appraisal and disclosure requirements that recently took effect may add extra time to the closing process. To be certain homebuyers can take advantage of the tax benefit – as the law stands today – interested buyers should apply for their loan no later than the beginning of October to be able to close the loan prior to the deadline.

Kerry Riley
Kerry@kerryriley.com