Homebuilding business on upswing again but experts say use caution
The boom-to-bust homebuilding business is on the upswing again.
Maybe it’ll be different this time around.
Maybe developers and lenders will keep their free-market urges in check.
Maybe would-be buyers will more realistic about how much house they can afford, if any at all.
Maybe the downturn has vanquished the market-distorting practice of quick-dollar home flipping.
But for the moment. the good times are back.
The latest evidence of a sustainable recovery for the industry came out last week, when the U.S. Commerce Department reported that builders nationwide began work on 0.3 percent more single-family homes in May than the previous month, fueled by growing demand, cheap money and depleting supplies. New home construction is up nearly 29 percent in the past year.
“It’s finally fun again,” Will Jenkinson of Carolina One New Homes said at a Charleston Home Builders Association luncheon last week. “For those of you who have been around the last several years, we trudged through it. We survived it, and now it’s time to have a little fun.”
Just not too much fun.
The last recession rocked the local home-building business with the force of a sledgehammer. The wreckage is still fresh in the mind of Joey Von Nessen, a research economist who provides the local industry with an annual forecast.
“A few years ago, giving this talk was much less pleasant. ... Things have certainly turned around,” he said Tuesday in North Charleston.
Von Nessen noted that the Charleston region was recently ranked ninth highest in the country in terms of post-recession growth. That rating, from the Milken Institute, was based on above-average gains in employment, wages and the value of goods and services from local high-tech employers, such as Boeing Co., the Medical University of South Carolina and the Space and Naval Warfare System Center Atlantic.
“This is very good news for Charleston homes sales,” said Von Nessen, who is with Columbia-based RESH Marketing and is a consultant to the University of South Carolina’s Moore School of Business.
Though new homes represent only a part of the overall market, they pack a big economic punch. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.
The rebound is starting to attract fresh blood to an industry that contracted sharply when the market cratered six years ago. Von Nessen said about 180 builders were classified as having sold at least one home in the local area in 2007. By that same measurement, just 80 firms were considered active at the end of 2012.
The industry for the moment is dominated by the bigger players that had the firepower to ride out the long downturn.
The top 10 builders in the region account for about 80 percent of the sales, said Von Nessen.
“It’s a more concentrated market where new builders have to be much more aggressive to capture market-share,” he said.
Proceed with caution
Von Nessen also pointed out some potential trouble spots for the local industry.
Those include a dip in local job growth this year, the 2 percent payroll tax hike, the impact of sequestration on the region’s large federal workforce and the effects on South Carolina trade from the troubles in Europe.
Also, mortgage interest rates are edging higher, though they remain low by historic standards.
Also, prices are continuing to rise because inventory is dropping.
As of last week, about 5,600 homes were on the market in the region, representing a five-month supply if all are sold at the current pace.
A year ago, Charleston had an eight-month supply.
Von Nessen offered builders a note of caution that’s worth heeding.
“Let’s not get too cocky,” he said.
Contact John McDermott at 937-5572. The Associated Press contributed to this report.