New home demand high; number of permits down

Builders pulled 40 fewer new residential permits during the first quarter of this year than last year, but that’s not necessarily a slow-down signal. May was the wettest month on record, and prolonged wet spells are not friendly to construction. There are also headwinds builders are contending with, but demand isn’t one of them.

Since the beginning of last year, rising lumber prices – made worse by tariffs on imported Canadian softwood lumber – have increased the price of an average single-family by $7,000, according to the National Association of Homebuilders. Framing lumber, including installation costs, accounts for about 18% of an average new home’s cost, so more expensive lumber comes at a bad time for local builders struggling to keep up with strong consumer demand while balancing increasingly higher materials and labor costs.

Tim Hicks, of Hicks Construction, said logistics is as much of an issue for his business. Due to the shortage of trucks, I’m having to order materials two and three weeks ahead of time, he said. But than hasn’t dampened the pace of business. Hicks is a custom home builder, and he says he’s getting at least a call a day.

New residential permits.

He says the current construction recovery is following the same path as it has in the past. It begins with the demand for homes in the $250,000 to $350,000 range. As the recovery builds, it moves into the $500,000 plus range.

Michael Garland, Garland Farm Estates, said he isn’t pulling any permits right now. “There’s lots of information coming down and any slowing down that shows up is due to the business side, not demand.” He said his contact with potential new customers has been very steady. “We’re doing more aggressive marketing, and I’m moving forward on my next phase.”

Eric Kistner said development at Edinburgh and Danny Karst’s and John Rose’s newest venture – Riverwatch – is performing well. Riverwatch is a 10-acre development on Netherland Inn Road on the Hawkins County portion of Kingsport along the Holston River. Kistner said it has been a magnet for buyers who are moving into retirement.  When Karst and Rose announced Riverwatch, their plan was for 1,900 to 2,200 square foot homes that would be in the high $220,000 to $280,000 range. That was almost a year ago.

The number of new homes and prices have become more of an issue since existing home sales closed the inventory to a two-month supply in the major local housing markets. Realtors are trying to motivate owners than now is a good time to put their home on the market, but many owners haven’t found the product they want. And the price is part of that.

Speaking at a recent meeting of the Northeast Tennessee Association of Realtors’ Commercial Multiple Listing Service meeting Shane Abraham, principal at Universal Development and Construction, stepped up to the price issue when answering a question about housing for retirees. He said it is becoming increasingly difficult to meet the price point that many retirees or those nearing retirement are looking for.

The last year 1021 new residential permits were pulled for the Tri-Cities region. Dale Akins, president of the Market Edge in Knoxville, projected a 17% increase for this year. But even with those gains, the local new home industry is performing at barely more than half its pre-recession capacity.  At the same time, recent projected population gains join an improving economy to create more housing demand.

Although fewer new residential permits were pulled during the first quarter, the permit moving average trend for the first quarter was 16.2% better than the first quarter of last year.