On the rise: Homebuilders and developers see major spike in sales activity

focus-constructionThe numbers tell the story of a sudden boom in business for area homebuilders and developers. And most are optimistic the growth will continue.

There were 680 new single-family building permits issued in the first quarter of 2013 in El Paso County, almost 40 percent more than in the first quarter of 2012 and the most since 2007.

Challenger Homes has sold 76 homes so far this year, said Kyle Fisk, Challenger’s marketing director.

“That was the best January and the best February for sales Challenger has ever seen,” Fisk said.

While technically the market’s busiest builder, based on Pikes Peak Regional Building permits, Challenger certainly is not the only new homebuilder that already has enjoyed major growth this year.

“If we get everything closed we have under contract right now, we’ll have more sales than we did all year last year,” said Randy Deming, CEO of Campbell Homes.

Several market factors are driving demand for new homes, Deming said. For one, interest rates are low, which means buyers can afford more than they could even a year ago when rates were about a percentage point higher.

“There’s also a lot more confidence in the market,” he said.

Jared St. Aubyn, CEO of Saint Aubyn Homes, says there is a sense that right now is the time to act.

“I think people are starting to realize that the best value they could have gotten in a house was last year,” he said. “But if they wait until next year, prices will probably be higher.”

That’s bringing people out to buy, St. Aubyn said. There’s a sense of urgency to act before prices or interest rates or both climb.

Then there’s the fact that the resale market is squeezed.

“I think we (new home builders) are getting a higher percentage of the business now,” Deming said. “From what I’m hearing, the existing inventory is pretty well picked over out there.”

There were 3,046 homes listed for sale on the Pikes Peak Association of Realtors multiple listings service in March. With 1,947 that went under contract in the same month, it would take less than two months to sell through the total inventory of listings.

“I think people look at the value proposition of buying new,” Fisk said.

“They have the ability to build it their way, make it theirs and there are a lot of advantages to buying new.”

Who’s buying what

No one area is hotter than others for building, most in the industry say.

“We’re seeing big increases in activity all over,” said John Bissett, president of the Housing and Building Association of Colorado Springs and CEO of J.M. Weston Homes. “I think builders are seeing increases throughout the region and across price points.”

And people seem to be coming from everywhere. Doug Woods of Meridian Ranch, a planned community near unincorporated Peyton, said he has met people transferred here from out of state, people moving out from Colorado Springs and military personnel with and without families at the development’s new-homeowner orientations.

Deming said he’s even had people moving from the East Coast buy local homes — sight-unseen — off the Internet.

Grant Langdon of Reunion Homes said about 90 percent of his buyers have some association with the military and finance their home purchases with VA loans.

Mike Tinlin, regional vice president for Oakwood Homes, which owns the Banning Lewis master-planned community on the east edge of town, said about half the residents work for the military. About 75 percent of the homebuyers have children and 58 percent have two or more children, he said. But the homes still range in price from about $215,000 to more than $400,000.

In recent years, Realtors and builders have said there’s not much of a market for higher-end homes.

But it seems builders and developers now are noticing a greater interest from buyers in bigger lots and higher-end finishes.

“Starting in late 2012 into 2013, we’ve been seeing a willingness by the consumer to spend more on options,” Fisk said. “They’re still buying the same house, but they’re adding some of the extras they weren’t willing to a couple years ago.”

They’re also looking for more space outdoors.

Developers opening lots

Tinlin said Oakwood is preparing to open 350 new lots at Banning Lewis. There are still several lots available in the 890-lot Village 1 of the development. Only 450 lots are occupied, but there are another 60 to 70 building permits and several smaller lots that only Oakwood can use.

“The 55- to 75-foot lots — that’s what we need sooner than later, and we’re really chewing through those quickly,” he said.

That’s true for most area developers.

Gold Hill Mesa, an infill development on the Westside, plans to open 22 lots in a block of lots it calls filing 2A later this month.

While the community still has some vacant interior lots, Marketing Director Stephanie Edwards said most of them are smaller and there’s a lot of demand for the larger lots.

Edwards said the development has seen triple the activity in the first quarter of this year that it saw in the first three months of 2012.

Woods said the growth at Meridian Ranch has been extreme as well. The development has sold through the 54 lots it opened a year ago and has closed on 60 percent of the 122 lots it opened last fall. Woods said he is about to open another 131 lots to builders.

The biggest reason he has to open them is because of high demand for one-third-acre and half-acre lots. He also started grading 64 one-acre lots that should be available by the fall, he said.

“It’s been a turnaround the last couple years,” Woods said. “Since 2006, it’s been slow.”

Market influences

While all this activity feels great, several builders and developers wonder if it’s sustainable. First of all, most builders say they expect the developers to run out of finished housing lots soon. And the raw land will cost more to prepare.

“There are no more finished lots out there,” Deming said. “Once we get through this inventory, prices are going to skyrocket.”

That could hurt the competitiveness for new construction, though if tight inventory in the resale market continues, prices could go up across the board for older and new homes alike.

Bissett and most builders say they believe this surge is coming from pent-up demand — people who have been waiting on the sidelines for the right time to buy. And they’ve decided this is it.

But that’s not enough to drive a market long-term.

“The big question is if this is just a temporary spike,” Bissett said.

He said it all depends on job growth. That’s what a lot of builders, particularly those who notice most of their buyers have military ties, said as well. Without new jobs and more diversity in the economy, there’s no reason to believe the new-home construction market can carry on like it is.

“We’re not quite at the level where we were at the height,” Deming said. “But it depends on how long this runs. We have sold a lot of houses in a very short period of time.

“There’s no way to tell. It’s just kind of crazy.”