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Janesville real estate market may be bottoming out

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Photo by Dan Lassiter

Matt Pierce does roofing work on a Preferred Home under construction at 1127 Edgeview Dr. in Janesville.

JANESVILLE — New home construction in Janesville approached its lowest level in 30 years while the value of existing homes sold hit a level not seen since 2000.

Real estate agents and builders, however, predict that the local market has bottomed out and soon will begin a gradual ascent.

Existing home sales

In a sector where appreciation is everything, Janesville’s real estate market closed the recent decade at about the same level it opened it.

In 2000, 757 Janesville homes sold for $82.7 million. That’s an average of $109,367 per sale.

The decade closed with 713 homes sold for $82.5 million and an average of $115,827.

What happened in between was the classic rise and fall of the market.

The first half of the decade saw a run-up to 2005, when 1,098 homes changed hands and generated $146 million. The average sales price in 2005 was $133,627, a number eclipsed in 2006 and 2007.

In 2008, housing market troubles started to show up on the nation’s coasts and in some southern states. While the Janesville market typically doesn’t experience the wild ups and downs of other national markets, the local market followed the overall trend and slipped.

Local real estate agents sold just 654 houses in 2008, a 29 percent drop from the previous year. The average sales price fell 9 percent to $130,702.

The good news for local Realtors in 2009 was that they sold more houses, but the average price of those homes dropped to $115,827.

Jerry Morse, secretary-treasurer of the Rock Green Association of Realtors and owner-broker of The Morse Co. in Janesville, said the increasing sales and decreasing values were tied to two factors:

-- For the most part, foreclosures and short sales fueled the exchange of properties on the lower end of the price spectrum.

Foreclosures were up 28 percent in Rock County last year.

Short sales happen when the sale proceeds fall short of the balance owed. They often occur when a borrower can’t pay the mortgage, but the lender decides that selling the property at a moderate loss is better than pressing the current debtor.

-- Tax credits for first-time homebuyers were set to expire in November but were extended through April. The federal program provides a tax credit of up to $8,000 for qualified first-time homebuyers and authorizes a credit of up to $6,500 for repeat homebuyers.

Paula Carrier of Best Realty of Edgerton and president of the local Realtors’ association, said the overall market is fractured.

“There are really two markets,” she said. “There’s the foreclosure and short sale market, and then there’s the normal market.”

The first has impacted the second, she said.

“I think consumers got spoiled in 2007 when houses were selling in 30 or 45 days,” she said. “Now it’s taking more like six months.

“When I got into the business in the ’80s, I had people sign a one-year agreement with me.”

While they tend to decrease prices, foreclosure sales ultimately could help the local market, as abandoned and neglected properties are bought and improved, she said.

“The biggest thing I can tell people is that if they have to sell right now, they shouldn’t expect a huge profit,” she said. “If they can hold out, they’ll come out further ahead.”

Residential construction

If local homebuilders relied solely on activity within Janesville’s city limits, 2009 would have put them out of business.

The city issued just 63 residential building permits last year, 72 percent fewer than it did in 2007.

The precipitous drop can be traced to the start of the national economic downturn in 2008.

For three decades, the number of new homes built in Janesville has ranged generally from 110 to 312. The paltry number of permits in 2009 mirrors the recession of 1981 and 1982, when 65 and 54 permits were issued, respectively.

Equally as eye opening is who is pulling the building permits.

Last year, two owners built their own houses.

The 61 remaining permits were issued to 14 builders. Twelve of those pulled either one or two permits to build a house in Janesville.

Preferred Homes of Janesville was the runaway exception. The company received 35 permits, 56 percent of the city’s total for the year.

Asked whether Preferred Homes caught lightning in a bottle, owner Bill Bohn chuckled.

“Actually, everything was pretty lousy last year,” he said.

Bohn said his company builds quality homes on a basis of strict cost controls. The company owns all of its lots, which allows it to control the sale price. In addition, Preferred uses Realtors as its sales force, maintains an inventory of available homes and offers turnkey financing that eliminates the need for construction loans.

It also employs its own plumbing, heating, concrete, framing and siding crews. That kind of longevity breeds familiarity and drives quality, he said.

“We wouldn’t have built more than 600 homes in the last 16 years if we were building junk,” Bohn said, adding that most of the company’s business was in lower-priced homes.

Eric Richards, owner of Eric Richards Construction, didn’t build a single house in Janesville in 2009. That’s not unusual, he said, as his company tends to do its work in rural areas.

“I had three nice rural projects last year and a couple more heading into 2010,” he said. “But I think I can speak for a lot of builders when I say that 2009 was a pretty bad year.

“I think we all decided to take a collective breath, cut our overhead and try to hold on for sunnier days.”

Vicky Miller, a development specialist with the city, said that if the most recent recession was similar to that of the early 1980s, it will take a couple of years to see an increase in residential construction activity.

“The eight-year period of time from 2000 to 2007 is representative of a stable interval within the local housing market,” she said in an analysis of permit activity.

For that period, the city issued an average of 259 permits a year.

“A slow climb is predicted for 2010, with the number of permits expected to remain fairly constant with 2009,” Miller said.

An alternative

With stagnation in the sales and new construction markets, local homeowners have continued to focus on remodeling.

“I saw this coming two years ago and hired a guy full time to run our remodeling,” said Bob Sarow, owner of Wellnitz & Sarow Builders in Janesville.

Sarow’s company was one those that didn’t do much new construction in Janesville in 2009. In fact, he pulled just one permit in the city.

“We did some new homes outside the city, but the remodeling really helped carry us,” he said. “In the last two years, I’ve grossed more from remodeling than I have in the last 20-plus years combined.”

The city issued 275 permits for remodeling additions or alterations in 2009, a 6 percent drop from the previous year.

Richards also said his company increased its remodeling work in 2009.

“A lot of homeowners have decided that this isn’t the best time to sell, that they’re competing with foreclosures and short sales,” Richards said. “If they do sell, they’re selling for a loss, and that isn’t the best way to go into a new building project.

“They’re deciding to remodel and invest in their homes.”

The outlook

Builder Richards and Realtor Carrier are optimistic about a rebound.

The fundamentals of buying a house—favorable interest rates, tax credits and equity that comes with ownership—are still strong, Carrier said.

“The investment market has come alive, and the conventional credit markets are heading back to normal,” she said. “We’ve had a lot more showings, and there really are people out there looking around.

“It’s just that it’s the lower end of the market that’s moving right now. The higher end will take more time.”

Bohn agreed, saying that first- and second-time homebuyers looking at new construction are settling in at the lower end of the price spectrum.

“I think that’s why the custom builders and the higher end of the market have gotten hammered,” he said.

Bohn expects that 2010 will continue to be flat, but Richards said he’s seeing signs that the local market is heading in the right direction.

But, he said, it still needs help.

“I think a lot of it will come from job creation,” he said. “Until we start creating some jobs in the area, things could stay pretty flat.”