Homebuilders say recovery distant, but coming
June 15, 2010
The recession has been hard on the residential construction industry. Summer is typically its busiest time of year, but evidence suggests local companies will limp through it again this year.
Despite these troubles, industry experts expect the year to end strong suggesting recovery is already underway.
The most recent issue of Utah’s Economy published by Commerce Real Estate Solutions said building activity is picking up in 2010.
It also made the argument that compared to other Western states, Utah’s builders did all right during the worst years of 2008 and 2009.
Statewide, building permit applications were down 62 percent from the peak, but most states saw decreases exceeding 70 percent.
The number of single-family houses built saw the sharpest decrease ever on record since the recession began, but in Utah 2009 was only down about four percent from the previous year compared to 24 percent nationally, wrote article author Jim Wood from the Bureau of Economic and Business Research at the University of Utah.
Recommended Stories For You
In 2009, single-family home permits were down 56 percent from 2007 within the Park City limits.
The Basin and other areas in the county fared worse, seeing a 65 percent decrease from 2008 to 2009. Comparing to 2007 is difficult, said Kathy Peck with the Summit County Building Department, because all of the construction at The Canyons in 2007 meant 2009 was off 96 percent.
The good news, she said, is 2010 is on track with recent years, and could exceed them.
Topography and build out mean Park City will typically trail the county in new home starts.
Jason Moore, president of the Park City Area Homebuilders Association said with all the challenges, there are still clients wanting new, custom homes.
Many home builders have had to enter the remodel market to survive the recession, he said, but work continues and will be displayed in the 2010 Showcase of Homes later this summer.
The Showcase will have to be smaller because there were fewer homes built since the last show, but the quality will be as high as during any year, he said.
Funding from banks continues to be a problem, Moore said, and there’s still a lot of distressed inventory on the market decreasing the demand for new homes.
A portion of the success during the boom came from speculation homes. That kind of client will not return, so full recovery may take time, he explained.
A lot of executives at building firms are taking early retirements, and contractors and laborers alike have been seen returning to wherever they came here from, Moore added.
Some good news is that a few dozen firms have found work finishing homes that were begun before the bubble burst and then abandoned after the client or the contractor went bust.
Richard Jaffa, of Jaffa Group Design/Build, said he’s participated in that niche market.
As long as a buyer is willing to accept someone else’s design and a lack of warranty on work done before they purchased it, clients are finding fantastic deals in unfinished homes, he said.
A few he knows of have purchased an almost-finished house for the price the original owners paid for the lot.
Jaffa guessed there were around 30 homes in Summit County built by people thinking they could build one speculation home and sell it immediately and then build a second one with the profits essentially free. But construction costs were also at a high, and the value of the homes quickly fell in the recession.
About two-thirds are now completed, removing them from the market, he said.
Moore suggested the biggest challenge facing the industry heading into the summer are small firms low-balling bids on projects. Some are bidding so low they cannot finish the project for the money and are walking away without finishing.
Moore said his firm has been entering more bids than usual this year, but has been winning fewer of them. The competition is so intense he believes some contractors are paying homeowners to work.
Jane Driggs, president and CEO of the Utah Better Business Bureau, said complaints against contractors in the state are up five percent. Most complaints say the contractor will not respond to messages or went out of business. She said queries regarding the trustworthiness of particular contractors are also up.
View Homebuilding still slow, but picking up in a larger map