January 20, 2008

Is new home construction slow down good for the Nashville real estate market?

Nashville new home construction is down but that could be good news for the real estate market
The Nashville area's building permits have fallen to the pre-boom levels of 2003, a sign that builders strongly restricted new home construction in 2007.
Analysts say that pull back is good for the real estate market since inventory levels have been on the rise and demand shrunk.
Tightening has also meant job cuts.
"The good news is that the building permits are off, because we are finding ourselves with some extra inventory in the marketplace," says Edsel Charles, president of Nashville-based MarketGraphics Research Group, which conducted the report. "We are seeing the market reaching for a bottom and anticipate that the market will start its recovery between August of 2008 and March 2009."
Building permits in the seven-county area for January through November were down 17 percent in 2007 - coming in at 11,389 compared to 13,851, according to MarketGraphics. In 2003 there were 11,421 permits pulled between January and November.
The change in market dynamics has caused Nashville builders to shave staff and reposition their businesses.
Nashville-based Greenvale Homes pulled 22 percent fewer permits in 2007 than in 2006, and its inventory was down almost 50 percent.
Greenvale's chief financial officer Shane McFarland says builders were smart in 2007 and slowed their construction to allow inventory to be absorbed. The slowdown caused his company to cut some staffing and its subcontractor base.
"Most companies have had to scale back on operating, whether its inside staff or outside staff. We could not be positioned to be building homes at an '06 level. Any prudent business has done that," McFarland says.
Middle Tennessee State University economist David Penn says he's sure the local building industry has seen cutbacks. So far, however, preliminary numbers show construction jobs locally have increased over last year, but Penn says when adjusted numbers come out, they may show a drop.
Construction jobs nationally have been falling, and Penn isn't sure if the pick-up in commercial building and road construction is enough to offset the residential losses in Nashville. Phil Pace, owner of The Conseco Group Inc. a construction service company that primarily does commercial building, says he's seen a lot more resumes from residential contractors looking for work.
Pace says he expects to see more competition in the commercial subcontractor market, which could mean their services may cost slightly less or "at best" stay flat. Pace says this looks to be a plus for his company, since the last couple years have seen prices rise for all trades.
Wilson County bucked the trend this year. It had a 13 percent increase in building permits to 1,208 from 1,068. Davidson County was the other county with an increase - 0.5 percent to 3,812 - from January through November, according to MarketGraphics.
The other five counties saw permits decline, including Williamson County with the largest drop of 37 percent.
Real estate agents in Mt. Juliet say Providence Marketplace, good schools and affordable prices have increased construction in Wilson County.
"We've got almost everything that people are looking for. People are coming farther east to buy. They can get so much more for their money," says Margaret Dixon, who sells homes for builders through Crye-Leike Realtors. She says her builders in Wilson County reacted to the market by slowing down. The result: She now has no spec homes left from one builder, one home left from another and two spec homes left from a third.
And with the median price for a home at $202,500, buyers can get a lot more for their money than Williamson County's $379,369 median price.
McFarland says he expects the housing market to be strong into 2008, but not as good as 2005 and 2006. His company, which primarily builds in Davidson and Rutherford counties, has moved into Wilson County because numbers showed it was a land of opportunity.
Celebration Homes principal partner Randall Smith says his sales in Wilson County helped his company see its best year since it started in 2001. The builder sells homes in three counties, but sales in Providence played a significant role in the company's success this year.
"We've seen steady demand for our housing in Providence where some of our other communities demand has been less. Some of that has been due to oversupply of housing," Smith says.
Nashville Business Journal - January 18, 2008

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