Home Builders Awaiting A Spring Thaw
Home Builders Awaiting A Spring Thaw
By Lee Howard - Published on 3/29/2009
Michael Scarpa admits that the home construction business these days can't measure up to the frenetic pace of a few years ago, but he's got a message for naysayers: “It's not all doom and gloom.” Scarpa, whose Pawcatuck-based Coastal Construction Management, LLC specializes in high-end custom homes, said building continues in small pockets on the waterfront around southeastern Connecticut and southern Rhode Island, particularly in Watch Hill, Niantic, Groton Long Point and Masons Island.
Scarpa is managing two projects - about half his typical load - including a high-end home in Mystic that he estimates will take 14 months to complete. Today's slow construction business, he said, means people who have weathered the down economy - and who can secure financing - can get good value.
Construction costs have gone down, he said, as worldwide demand for materials has lessened and local plumbers, electricians and carpenters have dropped prices to secure work in a competitive environment. ”People who can do projects can go forward with confidence that now is a great time to build,” said Scarpa, a former two-time local Builder of the Year who has been constructing homes for nearly 30 years.
Other builders agree and are hopeful that this spring will start to break a two-year construction slowdown locally. As bad as it's been in those two years, builders say, the past six months or so have been particularly dead, though they have seen a glimmer of hope in the past two weeks as warmer weather brings more inquiries.
But David Reagan and Peter Giordano Jr. of Tier One Development in Mystic said they have managed to stay busy throughout the downturn, thanks to a decision to turn to mid-priced, stick-built houses. The two partners said they have four contracts with buyers for homes in an eight-lot subdivision in Mystic just approved in November that will feature 2,500-square-foot Colonials in the $400,000 to $500,000 range.
”We're in the game,” Giordano said. “Most banks don't lend to developers today. But we work with a number of banks. ... When we go to the table, they know we are ready.”
While real estate agents say the local market is seeing interest among homebuyers looking for homes below $300,000 and above $700,000, Reagan believes moderately priced housing will sell if it is perceived as a good value. To create the value while still being able to generate a profit, Giordano said the company has become much more efficient in the way it manages its projects, from the scheduling of subcontractors to the delivery of building materials to the reduction of on-site waste.
”There's still a great interest if the price is right,” Reagan said. “We feel the market has bottomed out.”
Edward Deak, an economist at Fairfield University, said he expects housing starts to reach bottom in the next three months. Permits for new housing construction statewide last year were half the level of 2004, and the New London-Norwich area ranks last in the state for housing permit activity, according to statistics compiled by the University of Connecticut.
In January, only 92 new housing permits were authorized throughout Connecticut, and February saw only 200 permits throughout the state's 128 towns - a trend that, if it continues, would bring this year's new-housing starts to half of last year's levels and a quarter of the highs in 2004. ”How can it go any lower?” Deak asked. Deak, speaking last week at a meeting of the Builders Association of Eastern Connecticut, predicted that median sales prices of homes will start to rise in the third quarter of next year.
Barry Rosa, a vice president with Prudential Connecticut who also addressed the builders, added that a new $8,000 tax credit for first-time homebuyers likely will spur more interest in real estate this year and indirectly could drive more homebuilding.
But Bill Pieniadz of P&H Construction in Uncasville said the tax credit would have been more helpful if it were less expensive to build in eastern Connecticut. With many empty lots having been secured a few years ago in the $100,000 range, it doesn't make economic sense to build $250,000 to $350,000 starter homes, he said. ”You look at the numbers, and the numbers don't work anymore,” he said. Still, Pieniadz said at some point businesses are going to have to think about taking a risk. His company is building a spec home - a home without a particular buyer in mind - which, in the current real estate slowdown, is considered to be a big risk.
”The spec-home market is practically nonexistent,” said Renee Main, executive officer of the builders association.
Attila Keller, owner of Ricon Homes in Waterford, agreed that spec homes represent a danger in today's market, but he thinks lower-priced housing can thrive even in the current environment. He is marketing the last two quarter-acre lots in a 13-lot subdivision completed last year in Groton whose average selling price reached $278,000, but he won't build until a buyer comes forward. ”We tried to target starting house prices,” Keller said. “It's a very good value for the money.” The homes, averaging a bit less than 1,800 square feet, feature up to three bedrooms and two-and-a-half baths, with central air conditioning, a dining room, deck and even a laundry area. ”People want smaller homes, more efficient homes,” Keller said.
All the talk about the size and cost of new homes presupposes the ability to fund their acquisition, and builders say buyers are finding credit is hard to get.
Dave Hammerstrom of Chelsea Groton Bank said the major problem is that regulators have tightened loan-to-value requirements so that buyers have to come up with more of a down payment. That is harder and harder to do with home values and stock market prices plunging in tandem, he said.
No matter what the reason for the home-building bust, builders say they are doing what they can to reel in new work - some diversifying into home renovations, while others move to commercial construction.
While Reagan and Giordano preach the gospel of diversification, some builders, like Scarpa of Coastal Construction, still believe in staying true to their long-time niche - in his case, homes typically costing $800,000 or more - even if that means less work in the short term.
”This level of client has to have confidence in what you do,” Scarpa said. “Our philosophy is to stick with what you're good at.”