Housing Data Hints At Uptick

11/08/2010
By Greg Bordonaro
gbordonaro@HartfordBusiness.com

Home builder and developer Liz Verna is seeing signs of optimism in her industry.

The 65-lot subdivision she’s worked to develop in Wallingford, for example, has sold 21 units so far this year, compared to just eight in all of 2009. The development, known as the Willows, includes old-fashioned style homes that start around $450,000, but one was recently sold for over $700,000.

It’s the most activity Verna said she has seen on the project since it started about three years ago. And it could be a sign that buyers are coming back to the market.

New home construction in Connecticut has gotten a boost in recent months, helping to put the state more than 16 percent ahead of last year’s dismal pace of new home permits.

Through September, Connecticut towns and cities issued 2,685 permits for new single-family houses, condominium and apartment units compared with 2,315 a year ago, according to the state Department ofEconomic and Community Development.

But a full scale recovery still remains out of sight. Home sales continue to falter, while the region’s inventory of unsold homes is increasing by double digits, creating competitive pressures on new construction.

And even with the recent uptick in new home permits, the state is considerably behind the pace set during the boom years in the mid- 2000’s, when it issued more than 6,000 new permits annually.

But for an industry that has been hit hard by the recession, any positive indicators are seen as a step in the right direction.

“I hope that the recent increases are indicative for what we are going see moving forward,” said Verna, of Verna Properties. “But many builders are still in a holding pattern.”

The greatest spur in new home permits this year occurred in April, aided by the homebuyer tax credit which was about to expire at the time. About 763 permits were issued that month, the highest number of any month since October 2006.

There are some new home hot spots in Connecticut but no one region appears to be recovering that much faster than another.

New Haven has been the epicenter of activity in Connecticut this year, issuing 469 home permits through the first nine months of 2010, compared to just 13 this time last year.

Hartford has only issued 20 housing permits through September, the same amount as a year ago.

Among the suburbs, East Windsor, Wallingford, Vernon, and Glastonbury have seen the biggest jumps in activity, issuing 63, 59, 48, and 36 permits respectively, doubling output from a year ago. Middletown, Southington, and Berlin saw smaller, but still noticeable increases in permit activity as well.

Home builder Bill Ferrigno, of Sunlight Construction in Avon, said he is seeing increased interest in the three development projects he’s working on.

In particular he’s seeing rising sales for newly built homes in the million-dollar range. He said he’s working on four contracts right now with potential buyers for high-end luxury homes in his West Hills development in Avon. He has sold about five homes in the 15-lot development so far, each worth about $1 million.

He’s also getting interested buyers for another eight-lot subdivision development in Avon with homes in the $500,000 to $700,000 price range. That project located on Knoll Lane has not yet broken ground.

“People who are secure in their jobs are willing to buy right now,” Ferrigno said. “Prices have bottomed and people feel like it’s the right time to do it.”

Ferrigno said the recent uptick in new home permits is being spurred by historically low interest rates and great values on new home construction. He said prices for new homes in Connecticut are down about 15 percent from where they were in 2007. Cheaper labor costs and reduced prices for certain commodities like lumber are helping to keep prices down, which should help spur pent up demand.

“It seems that where value is good, sales are occurring,” Ferrigno said. “People are expecting to get a good deal, and by and large builders are giving good deals. Anybody building new is finally adjusting to the current day market.”

Competitive pricing is what’s helping spur recent activity in Fairfield Village in Glastonbury, a 46-unit active adult community offering single family and duplex homes.

Kenith Leslie, Glastonbury’s director of community development, said the project, which started in 2006, struggled in its first couple of years, but has done well lately, including the sale of about seven homes in the last year. Prices for those homes started in the $400,000 to $500,000 range, but have come down to the $300,000 range.

“There’s a little more competitive pricing,” Leslie said.

Still, Leslie said there are few signs of a full scale recovery in home building, even though Glastonbury has seen one of biggest increases in home permits over the last year.

“There is not really increased optimism yet,” Leslie said. “There are a lot of small builders that moved on or are sitting on the sidelines.”

Connecticut’s housing market remains on shaky ground. The Hartford area’s inventory of unsold houses grew 14 percent in September, a victim of ongoing sales sluggishness, according to Greater Hartford Association of Realtors.

Houses for sale numbered 6,532 last month, up from 5,711 a year ago — rising for the second straight month, the association said.

Pending and actual sales also declined, while days on the market lengthened to 78 from 69.
Meanwhile, Connecticut’s September single-family home sales fell 14 percent to the lowest level for the month in two decades, according to the Warren Group.

Jeff Arakelian, president and CEO of the Greater Hartford Association of Realtors, said the residential market has remained relatively stable over the past year, with few signs of a full scale recovery or precipitous declines in home values.

But the buildup of housing inventory could create difficulties for home builders, especially since new home construction is typically more expensive than home resale’s.

“For a builder, it has to make them a little more cautious because it creates a lot of competition,” Arakelian said.

The construction sector, which includes home builders, has lost 19,200, or 27.7 percent of its workforce since June 2007. A loss of 500 jobs in September brought Connecticut’s construction employment level to 50,000, according to the state Department of Labor.

One of the problems, besides economic uncertainty is access to capital. Verna, who will take over as president of Home Builders Association of Connecticut in January, said banks remain skittish about making land development loans, which are some of the most risky investments.

Financing for construction and land development loans in Connecticut has plummeted nearly 31 percent over the last year, according to Federal Deposit Insurance Corp. data. At the end of the third quarter, Connecticut’s 54 federally insured banks had $2.4 billion in construction and land development loans on their books compared to $3.5 billion a year earlier.

The result is that builders who are interested in new developments are having a much harder time finding lenders to finance it.

“They just aren’t lending,” said Verna, who remains optimistic, especially with the low interest rate environment and pent up demand.

“The homeowners that are coming into open houses see this as a great opportunity to buy,” she said.