For anyone who thought the homebuilding numbers couldn’t get worse than they did in 2008, that year looks like a housing boom compared to 2009.
Shelby County builders filed just 529 new home permits last year, a 43.7 percent decline from 940 permits in 2008 and a staggering 80 percent decline from 2,643 permits in 2007, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.
Homes built last year were larger than they had been the previous two years, but they also were lower in value. Permits averaged 3,014 square feet and $220,482, compared with the 2008 averages of 2,979 square feet and $243,845 and the 2007 averages of 2,886 square feet and $245,050.
Tommy Byrnes, vice president of Byrnes/Ostner Investments and president of the Memphis Area Home Builders Association, said builders are realistic about today’s abysmal climate, but are holding out hope that the market has reached the bottom and could soon rebound.
“2009 was not a good year,” Byrnes said. “However, if you look at the bright side, it does mean that we’re responsible builders, that we’re not going out and extending our credit and doing stuff that we can’t afford to do. That’s one of the things. Memphis is a bunch of small builders. We don’t have the national guys here.”
TRICK OF THE TRADE: Franklin Farms in Cordova North’s 38016 ZIP code was one of the few bright spots for building activity during 2009.
Playing catch-up
Many builders have no choice but to be responsible because the financing to start new homes has become so difficult to obtain.?Despite that, some builders were able to start more homes than others.
Charles Morgan of Vintage Homes LLC led Shelby County last year with 75 new home permits that averaged 2,792 square feet and $182,400. He was followed by Regency Homebuilders LLC (51, 2,587 square feet, $162,870) and Grant Homes (35, 2,925 square feet, $248,530).
The top subdivision in 2009 was Franklin Farms in Cordova North’s 38016 ZIP code. That community saw 44 permits that averaged 2,121 square feet and $129, 568.
It was followed by the Villages at White Oak in Arlington’s 38002 (24, 3,205 square feet, $216,738) and two others in Cordova North’s 38016 – St. Andrews Place (24, 2,053, $147,627) and Sutton Place (24, 1,677, $138,208).
Despite the slowdown in construction, builders’ sales continue to outpace starts, an important factor when looking for the seeds of a recovery – although even those numbers fall shy of recent years.
Builders in 2009 sold 1,045 homes, a 25.6 percent decline from 1,405 homes sold in 2008 and a 55.1 percent decline from 2,326 homes sold in 2007. Last year’s builder sales averaged $238,483, down 10.8 percent from $269,535 in 2008 and down 17.3 percent from $288,421 in 2007.
The top home seller in 2009 was Vintage Homes, which sold 64 homes averaging $164,978 and totaling $10.6 million. Next was Regency with 43 sales averaging $187,050 and totaling $8 million.
As Byrnes noted, during the mid-2000s, when Shelby County was producing around 4,900 permits a year (much higher than the normal of 3,000 to 3,500 annually), that was an overzealous attempt by builders to cash in on the housing boom. The current dearth of permits is, in a way, a correction of that false market.
“We all know that Memphis cannot sustain 4,900 new homes a year,” Byrnes said. “I look at it as the pendulum’s heading back to where we need to be. The positive side is that our inventory is being absorbed … and there’s going to be demand for new homes.”
Making adjustments
When that happens is anyone’s guess, but one of the key factors in deciding if a local recovery arrives is financing.
Morgan, of Vintage Homes, said the difference between the builders who are starting homes and those who aren’t comes down to economics.
“You have to have a lot of capital to stay in this business over the last three years,” he said. “If you were undercapitalized, you were going to have great difficulty getting financing to stay in the business. Unfortunately a lot of builders were uncapitalized. The financing was one of the issues that kept us going because … we were able to save money and build capital.”
Sean Carlson, a partner at Regency Homebuilders LLC, said the key to finding success in today’s market is matching the right product with the right subdivision at the right price – not always an easy task.
“You have to spend a lot of time on your product and the type of homes that you’re going to deliver,” Carlson said. “And then price – you have to put yourself in the shoes of the buyer … try to figure out who’s going to buy these homes and what are they looking for.”
More than that, the homebuilders that enjoyed success in 2009, coupled with a good outlook for 2010, had to adapt and overcome the extreme difficulties of the housing crisis.
“You have to be lean and mean,” Carlson said. “You can no longer just try to keep a high overhead. When times were good, obviously you have a high overhead, and when things slow down a little bit, you keep that overhead knowing that things would come back. You have to adjust with the ebb and the flow of the market, and I think we’ve had to do some of that.”
