New home construction declines. As inventory clears, builders optimistic about turnaround Main Idaho Real Estate Insights
Residential construction across Idaho has been consistently falling since 2006 and while thats bad for the homebuilders who have been forced out of business, its good for the industry in general. (Idaho Business Review Story)

Boise New ConstructionWith fewer and fewer homes being built, fewer and fewer homes are lingering on the listings, waiting for buyers to decide between their myriad options. And inventory is approaching a level where construction will have to start picking up again to hold supply at a healthy level.
In August of last year, there were 2,279 newly constructed homes on the market in Ada and Canyon counties. This August there were just 1,630, according to the Intermountain Multiple Listing Service. That number is a flashback to the way things were before the market went crazy (between 1,700 and 1,810 new homes were on the market at a time in 2004).
“For forever, we haven’t had a real building season – it’s just been build, build, build,” said Steve Martinez, president of the Building Contractors Associat-ion of Southwestern Idaho and owner of Eagle-based Tradewinds Building Company. “Now we’re starting to see things getting back to typical building seasons; we’re finally getting back into that pattern. That makes me feel a lot better, because things were unhealthy before.”
Martinez said new construction has lately struggled to compete with foreclosures and short sales of existing homes, but that competition is thinning out.
“All the good deals to be made have been made; all the listings have been picked through,” he said.
Martinez’s Snake River Valley BCA counterpart, Randy Neary of Caldwell-based Solid Rock Homes, said foreclosures and short sales have forced appraisers to value new construction at lower values. He said a home that would normally be valued at $140 per square foot now faces homes in the neighborhood that recently sold for $105 to $115 per square foot.
“The appraiser is only allowed to go back so far on sales, … (so) he has no choice but to say, ‘This seems to be what the market is,’” Neary said. “We all know this is not what the market is; we all know it’s because of a short sale or foreclosure.”
But despite low values and slow demand, he said the decline in inventory and his stalwart optimism give him reason to hope.
“As we wade through the inventory, it’s a good thing,” he said. “It’s a sign we’re either at or coming out of the bottom, and brighter days are ahead.”
Eagle building official Mike Mongelli agreed, saying builders investing in speculative houses throughout the area were eventually left with more houses than the market could handle.
“When we start reducing inventory, that means we have more and more buyers coming into the marketplace. People are buying the product that’s sitting out there,” he said. “That being the case, that will eventually lead to – as inventory is sold down and as demand picks up – construction will go up again to meet the demand.”
And he shares the builders’ light-at-the-end-of-the-tunnel predictions.
“It’s enlightening to see the (inventory) numbers actually drop,” he said. “It may be small, but it’s good.”

by Dani Grigg



Posted by tlangford at 9/23/2008 1:31:00 PM
Comments (3)
Re:New home construction declines. As inventory clears, builders optimistic about turnaround
This is a great improvement! I only hope builders get more aggressive in the affordable home market.
Posted by on 9/23/2008 12:05 PM
Re:New home construction declines. As inventory clears, builders optimistic about turnaround
They will and they have to. Cory Barton figured that out long ago, if you build at an affordable price point you can sell a lot of homes.
Posted by tlangford on 9/23/2008 12:40 PM
Re:New home construction declines. As inventory clears, builders optimistic about turnaround
I have successfully argued with some appraisers that "short sales" are not the norm! Yes, they do exist all over at the moment, but if you had to buy a home and be closed by the end of October (which any lender will tell you is a comfortable time frame to close) is really not possible on most short sales! (I have been trying to close one for over 3 months and have no end date fixed yet!)

Trustee sales are also not fair comps because the buyer has to show up at the sale with cash or certified good funds (no chance to go out an get a loan).

Appraisers are supposed to use "arms length" fair market sales, so using a comp from some distressed sale at an artificially low price needs to be thrown out of the mix just as badly as as a comparable that someone paid too much for the property because they needed the land for a special purpose which may only apply to them (so they could live next to an elderly parent, etc.).

In a lot of statistical analysis, you throw out the high and the low and then figure the average.

We are building much more affordable homes finally. As lot prices have come back down, the starting bar has been lowered so that builders can afford to build smaller homes. When lots were averaging over $100K each, you couldn't hardly build a home that the average family in the Boise area could afford. One old rule of thumb is that the home price is about 3x lot cost. So if the lot was $100K, the builders built $300K in house for a package price of $400K. Now that you can find lots at $50K (or less) + (3x) $150K for the house, that puts us at $200,000K which is where we should be. Some can't afford that, so we need to be building 2 bedroom 2 bath condos for $150,000. Some people can afford more, but there are plenty of upper tier homes for sale, so we really don't need to build any of those on a speculation basis until we consume more of them!

Jim Paulson - Owner/Broker - Progressive Realty Corp.
Posted by on 10/2/2008 11:11 AM


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