Home construction market picks up
JANESVILLE The good news is that new home construction in Janesville is on a pace for its best year since 2008.
The bad news is that local building permit numbers since 2008 have been abysmal.
"Things are definitely looking better," said Kevin Ferguson, owner of Ferguson Custom Homes and president of the South Central Wisconsin Builders Association.
"I think we're starting to climb out, but we still have a long way to go."
From January through June, local builders pulled 29 permits to build single- and two-family homes, according to city of Janesville records. For all of 2011, they pulled just 31.
The local trend is mirrored at the county and state levels.
In Rock County, 40 permits were pulled in the first five months of the year compared with 66 for all of 2011. Statewide, the number of permits for the first five months was 42 percent of last year's total.
Ferguson said the numbers are somewhat skewed locally by the fact that one builder—Preferred Homes—has pulled the majority of the local permits.
Many of the Preferred Homes permits are for spec homes, those built without a committed buyer.
"It's skewed, but it's still progress," Ferguson said, noting that the lending climate favors buyers seeking traditional mortgages over new construction loans.
Bill Bohn, owner of Preferred Homes, said that while many of the homes his company is building are spec homes, the number of pre-solds has increased this year.
Through early July, Preferred had about 73 percent of the new construction market in Janesville.
"We've been fortunate this year," he said. "Last year was probably our worst, and we probably had 75 percent of the market, but we went two years without a pre-sold house.
"This year, we've had eight that are built specifically for people rather than on spec."
Bohn's company builds homes on a basis of strict cost controls. It owns all of its lots, which to a certain extent 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's still very hard to get a construction loan, and I don't think that will change until there's a change in government," Ferguson said. "The banks' hands are tied by government regulations, low appraisals and underwriters.
"I think a lot of people are waiting to see what will happen with the election. Interest rates are still low, but if you can't qualify for a construction loan, it doesn't matter if the money is free."
Bohn said he shares Ferguson's frustrations with the lending markets. His company has recently built new homes on which appraisals didn't meet the price of the new home.
Ferguson said more local builders are getting work, and they're encouraged by improvements in the local real estate market that includes growing sales of existing homes and higher prices for those sales.
"We need that end of the market to keep moving," he said. "If people are successful selling their starter home, maybe they will move up and build a house.
"We're also seeing movement in the sale of houses in the $220,000 to $230,000 range. That's good for me and the custom builders I compete with who don't built low-end homes."
Ferguson also said subcontractors and vendors in his association are starting to report more consistent work.
"Things are better, but we have a long way to go," he said. "At least we're starting on a slow, gradual climb out of this. It's been tough."
Bohn agrees that the local housing market is seeing signs of improvement. He's uncertain, however, if it will ever return to its historic highs.
"It's particularly difficult in Janesville, which got hit with a double whammy when General Motors left, and then the economy went down the tubes," he said. "It will take a long time to recover from that."
Confidence in local market improvements is echoed at the national level, where the National Association of Home Builders reported earlier this month that builder confidence reached its highest level since March 2007.
"This is greater evidence that the housing market has turned the corner as more buyers perceive the benefits of purchasing a newly built home while interest rates and prices are so favorable," Barry Rutenberg, the organization's chairman, said in a news release.
David Crowe, the group's chief economist, said improving builder confidence is combining with other improving housing indicators is lead the economy out of recession.
"This is particularly encouraging at a time when other parts of the economy have begun to show softness and is all the more reason that the challenges constraining housing's recovery—namely overly tight lending conditions, poor appraisals and the flow of distressed properties onto the market—need to be resolved," he said.