Tri-Cities new home permits increased by 3% last year. That seems like a low number considering the momentum in that sector. And from a data-tracking perspective, the number is low. But it doesn’t necessarily signal the market has run out of steam.

Drive around the region and you can see increased levels of new home construction. DR Horton – the nation’s largest homebuilder – has moved into the area. There’s also chatter about a second national builder poised to set up shop in Sullivan County. And local builders say they’re busier than they’ve been in a long time.

But only a 3% increase in permits?

If you look at just the numbers, the region’s new home permits have been flat for three years. The permit level has been slightly over a 1,000 a year since 2017. And it’s the best performance since 2008.  Last year’s total was about 29% off the 2008 pace. But four years ago, the new home sector was performing at about half of its pre-recession capacity.

And if you step back and look at regional patterns, new home construction has also plateaued in the Chattanooga and Asheville metro areas. Only Knoxville is seeing an increasing growth rate.

What’s going on has several drivers.

One thing you hear when some builders talk about is the absorption rate for spec homes has softened. The custom-home business continues to be robust, but spec homes in some areas are sitting on the market, getting lots of lookers, but not enough buyers.

There’s also the standard material cost increases and a construction labor shortage headwind.

And then there’s the weather.

“The weather is killing us,” said Kelly Wolfe of Wolfe Development while being interviewed on a rainy afternoon. “When you work outside, moving dirt, laying brick … you’re heavily dependent on good weather to accomplish your sales quotas. And, we’ve had a couple of the rainiest years in history. You simply can’t get enough work done with this weather pattern. There are lots of good things going on. But the weather’s not one of them.”

Some of the fundamentals for continue new home gains are in place. The secession of lot development that occurred during the Great Recession has ended. “While it has returned, it has not gotten ahead of immediate demand,” Wolfe said.  A similar dynamic exists with spec home construction. Wolfe said he doesn’t see any slack – at least in the area where he builds – where there’s more building that what the market will bear.

The distribution of 2019 permits also says a lot about how the region is developing.

Last year’s biggest new home permit gain came in Carter County were permit pulls were up 18%. Combined with Washington County’s 9% gain, you can see the geographic preference the market is setting. Together the two accounted for a little better than half of the new home permits in the seven counties included in the Market Edge’s 2019 year-end residential building permit trend report.

Sullivan County had 276 new permits last year – a 5% increase. It has been in the 200 plus new permits range for eight years. It’s the most stable permit pattern in the region. The 2019 count was the highest in those eight years – by one permit. But it’s not leading the pack and the counties in its sphere of influence didn’t see the same stability last year. Hawkins Co. permits declined by 41%, Scott Co. VA was down 30% and Washington Co. VA was down 20%.

Greene County is another example of a slow, steady new home permit pattern. Last year’s permit total was down by 3%, down four from the previous year.  Greene Co. permits have been in the 100 a plus new permits a year for four years.

The permit data begs the question. If the soggy weather pattern is a major headwind, how much new home growth is being bogged down?

Categories: REAL ESTATE