Builders News

Builders proceed with caution after glut of new homes
By Don Dodson
Sunday, December 23, 2007 9:36 AM CDT
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CHAMPAIGN – Homes are still being built in Champaign County, but builders have become more careful and conservative in picking their projects.
Customers are still hiring builders to custom-build homes, said Bill Peifer, president of the Home Builders Association of East Central Illinois.
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But builders are more cautious in deciding to proceed with "spec" houses – those built on speculation, with the hope someone will like them and buy them.
"We've seen a slowdown in the spec markets ... but we've seen a fair amount of people coming to us about building a new home," said Peifer, the owner of Signature Development. "We continue to build presold homes, but the spec market has been down."
Some builders are frank about the depth of the down cycle. Chris Creek, president of Creek Development, said the market for new mid-priced houses and condominiums is ailing.
"I don't think we've been this low in probably 17 years or so. We're significantly down from any year in the past decade, and we've cut our prices 8 to 10 percent," said Creek, who is developing condos at Ponds of Windsor in Champaign and at Water's Edge and Stillwater Landing, both in Urbana.

Signature Development's Bill Peifer stands in front of one of his company's spec homes in the Lake Falls subdivision in Savoy. By Darrell Hoemann
"It's a cycle. I've been through it a couple times ... and we're just waiting until it goes away," he said. "We hope to make enough money to keep the people we have and cover overhead and interest."
In the meantime, Creek has limited his inventory, and that worries him. If the market suddenly picks up in spring, he has little left to offer.
Creek said that in the fall of 2005, he felt "too many people were doing too many crazy things." When a banker asked him how many lots were presold in a subdivision he was developing, he said 60.
"I thought to myself, 'This is beyond a good time. There's something wrong here.'"
The following spring, the market for new homes slowed dramatically, Creek said.
"It continued to slow until about two months ago. It's kind of stabilized now," he said. "That's not good by any means, but it hasn't gotten worse."
Creek said most home builders who build "spec" houses have felt the pinch.
"Everyone's price has gone down, including ours," he said. "None of us is making as much as we used to.
"A lot of subcontractors have gone on to get other jobs or do something else," he added. "They had to. They had families to take care of."
As of Dec. 11, about 1,838 housing units were on the market in Champaign County, said Tom Harrington Jr., chief executive officer of the Devonshire Group.
Given the average rate of sales per month, it would take about 6.8 months for those to be absorbed, Harrington said. Six months is typical, he said, so the current inventory reflects a "fairly balanced market."
But among new homes – those less than a year old – there's an 11.4-month supply on the market.
"That would suggest we have an oversupply of new homes," Harrington said.
Paul Phillips, vice president of Armstrong Construction, estimated that new-home sales in 2006 were off 8 percent to 10 percent from 2005, and this year's sales are down another 8 percent to 10 percent.
"I'd say the spec home market is off the most," said Phillips, whose business is divided evenly between spec and custom-built homes.
"Probably the most overbuilt price range is $350,000 to $450,000," he said.
Creek sells condominiums in a variety of prices – from the low $200,000s at Ponds of Windsor to the $120,000 range at Stone Creek.
"Those are the ones that have moved the best for us," he said of the lower-priced homes. "There's nothing above the $180,000 mark (selling) for us right now."
The market is price-sensitive, said Mike Martin, director of residential development for The Atkins Group.
"The more expensive the home, there's a little more of a slowdown," he said.
The Atkins Group is developing Ashland Park, a subdivision north of Wal-Mart on North Prospect Avenue in Champaign. Many of its residents are first-time homebuyers. So far, 416 houses have been built, and 250 more are slated before the subdivision is complete.
Because many of the buyers wait for apartment leases to expire before moving into their new homes, most of the homes are sold during the early part of the year – before the traditional July 31 lease expiration, Martin said.
"We've started a few less homes (this fall)," he said. "We don't like for them to sit over winter."
Phillips dates the slowdown in new-home sales from early 2006. Buying tapered off as loan prices and interest rates went up, he said.
But things have changed in recent months.
"Long-term interest rates today are at a two- or three-year low," he said. National mortgage indexes show 15-year, fixed-rate mortgages with average rates of less than 6 percent, while 30-year, fixed-rate mortgages carry rates slightly above 6 percent.
"Those are fabulous rates," said Phillips, the home builders association's president-elect.
Signature Development's Peifer said he offers special incentives in order to sell spec houses.
In some cases, he'll offer to buy a customer's home if the customer is not able to sell before the new house is finished. In other cases, he'll offer rebates of $10,000 to $15,000 on new homes and lots in some subdivisions.
"We have to be imaginative and offer up some things we didn't in the last five to seven years," he said.
But it's not as though the entire market has dried up.
"Customers are taking longer to make decisions, but they still seem to be out there," Peifer said. "Spec homes have been slower to sell in the second half of the year. I consider the market to still be saturated in spite of a slowing of new starts."