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Sunday, 05 January 2014 20:53

West Michigan home builders begin to wrestle with demand

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Eastbrook Homes of Grand Rapids worked with banks looking to shed foreclosed real estate to pick up development sites on the cheap, savings the company has been able to pass along to customers looking to buy new homes, said Martha Thomas, a new home specialist with the company. Eastbrook Homes of Grand Rapids worked with banks looking to shed foreclosed real estate to pick up development sites on the cheap, savings the company has been able to pass along to customers looking to buy new homes, said Martha Thomas, a new home specialist with the company. COURTESY PHOTO

Demand for new homes sites in West Michigan is up and that has area homebuilders scrambling to provide new housing stock.

While pent-up demand has some firms bracing for higher sales, homebuilders also face labor challenges, competition for available land and a generational preference for renting instead of buying.

“We’re up a good 35 to 40 percent (in sales) over last year,” John Bitely, CEO of Rockford-based Sable Homes, said in December. “Part of the reason is simply just demand for new homes. There really weren’t many homes built in the last six years. Before the last housing bubble collapsed, people were building more homes than were needed, but our market never overbuilt like some others did.”

Building permits for single-family housing starts in the first 11 months of 2013 were up in every West Michigan market compared to full-year figures in 2012, according to data from the U.S. Census. (See chart.)

Nationally, all types of housing starts hit their highest level in five years, according to a U.S. Commerce Department report issued last month. Housing starts jumped 22.7 percent to a seasonally adjusted annual rate of 1.091 million in November, up from a rate of 889,000 in October, the report stated.

The report noted that single-family housing starts increased 20.8 percent to an annual rate of 727,000, while multi-family starts grew 26.8 percent to a rate of 364,000. In the Midwest, housing starts soared up 41.7 percent, the report stated.

The Lakeshore Home Builders Association reported strong increases in housing starts. Through November, the Holland-Grand Haven area is up roughly 30 percent in the number of new residential building permits issued year-to-year from 2012 to 2013, said Sue Schurman, the chapter’s newly appointed executive officer.

“We feel like things are coming back,” she said. “The feeling among the membership I have talked to is generally optimistic. The numbers are definitely up and the consensus is things are strong.”

With the West Michigan region’s own broad-based economic performance — including 2.4-percent job growth in 2013 in Grand Rapids, according to the most recent forecast from George Erickcek at the W.E Upjohn Institute for Employment Research — Bitely said his firm is struggling to build homes fast enough to meet customer demand.

“It’s a good problem to have. Job growth looks better and is translating into people’s ability to buy homes,” he said. “But there are still problems we need to solve. One of them being getting more people into the trades and more comfortable with the idea of making a living as a carpenter, electrician or a mason.”

When MiBiz spoke with Bitely, he said if he could find qualified people, he would hire three crews tomorrow. That would put the firm on pace to build 150 homes in the 2014. Bitely said Sable Homes would finish 110 homes in 2013, up from 70 homes in 2012.

With the new housing starts comes a need for another related aspect of the homebuilding business that’s not been seen in recent years: homesite infrastructure projects.

“We’re building roads like crazy,” Bitely said. “It can take two to four years to get approvals and build these communities, so we’re already behind the curve.”

However, these community expansions aren’t happening just anywhere across the region, he said, noting strong school districts and areas with shorter commute times are always where people want to locate.

Competition for available land for housing development spiked in the last few years as companies that weathered the downturn bought up most of the prime real estate, much of which was in foreclosure, Bitely said.

Sable Homes recently purchased five half-acre sites at the former Centennial Country Club to develop five homes in the $250,000 range, as MiBiz previously reported. LaCati Group of Grand Rapids is moving forward on plans for the Ridges of Cascade, a 240-unit high-end apartment complex on 24 acres nearby.

“There is no available land,” he said. “All those leftover lots and those that got foreclosed on were bought by those in the business.”

Grand Rapids-based Eastbrook Homes is one builder that did a lot of buying.

“We were very fortunate to have the financial strength to work with several banks and acquire neighborhoods coming out of the recession,” said Martha Thomas, a new home specialist for Eastbrook. “It was huge for us. The banks didn’t want to hold on to these neighborhoods, and they were really aggressive as to what they were willing to sell them for.”

Homebuilders really depleted the inventory of foreclosure sites, she said. That’s because the foreclosure purchases have been a boon for business, allowing firms like Eastbrook Homes to offer home sites at significantly reduced costs.

“Sites that were originally offered for $50,000 to $70,000, we can offer at $20,000 to $25,000,” Thomas said. “The thing is this situation really can’t be repeated with existing raw land and the cost to prepare those sites. There is really a limited supply on these deals in the market.”

It’s deals like these that are motivating many buyers and it’s also a message that homebuilders are spreading, making sure people know that these market conditions won’t last forever.

“The window of opportunity where buyers can capitalize on low rates and foreclosure prices is closing soon,” Thomas said.

While no longer at all-time lows, interest rates are still low, and current pricing, which is on the rise, still gives homebuyers the opportunity to buy more home than they could otherwise afford in the market, Thomas said.

Still, the sentiments of the millennial generation, which is comprised of mostly renters and is the same generation that saw their parents and family members go underwater on their mortgages, is somewhat of a concern for builders like Sable Homes, Bitely said.

“What bothers me is that mindset,” he said. “I can understand it and I know why people think that, but looking at the market, it’s a very obvious time to buy a home. … You can’t build equity going forward with renting. I wish people would quit listening to what the soothsayers and gurus are saying about where and what people want to buy.”

Read 4522 times Last modified on Thursday, 02 January 2014 13:14

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