The PVC farms that dot West Chatham, South Effingham and Bryan County will soon reap a delayed harvest.
Home builders are readying for what many expect to be their busiest spring since the housing bust left dozens of planned subdivisions incomplete or untouched. Many of those neglected developments, recognizable by the PVC pipes sticking out of the ground where they would ostensibly hook up to new homes, began to see activity late last year as market conditions improved.
“And we expect an extension of that trend,” said Mark Konter of Konter Quality Homes and the president of the Home Builders Association of Greater Savannah. “We’ll see an increase in inventory but nothing that resembles a glut.”
Local home builders know what a “glut” looks like. The recession hit during a once-in-a-generation peak of residential development. Close to half of Savannah area home builders went out of business during the downturn.
The survivors got by on building mostly starter homes in low price points. Those properties remain the focus — half the new homes that sold in January went for less than $200,000 — but builders no longer have to offer steep discounts or free upgrades like hardwood floors, screened porches or granite countertops to move product.
The remaining builders have also seen costs go down, largely due to lot prices. Lot sales surged in 2012 as lenders discounted properties repossessed during the bust. Lot sales were up 34 percent in West Chatham, 111 percent in Bryan County and 18 percent in Effingham County in 2012 versus 2011.
Meanwhile, the inventory of homes for sale on the western edge of the Savannah area dwindled. New listings dropped in Bryan and Effingham counties last year and Pooler was the sales hotbed of 2012, with more closings in its zip code than any other in the three-county area.
Not coincidentally, building permits rose 20 percent late last year.
“For Savannah, all trends are positive,” Steve Palm, president of real estate research firm Smart Numbers, told the Savannah Area Board of Realtors late last year. “And we’re looking at the best buying opportunity in a lifetime in terms of interest rates in the months ahead.”
Checks and balances
Better conditions are unlikely to translate to a home building boom.
A number of factors will keep starts in check, led by the continued impact of distressed sales on the market. Distressed properties are foreclosures repossessed by the lender and homes sold by the owner for less than what is owed on the mortgage. Distressed sales have made up anywhere from 35 to 40 percent of sales the last two years and the trend continued in January, with lenders listed as the sellers of 99 of the 298 closed transactions.
Distressed sales don’t worry builders now the way they did in 2010, 2011 and early in 2012, however. The deeply discounted foreclosures where the buyer could purchase the property and make significant improvements for less money than it took to buy a new home — or a move-in ready existing home — have cycled through. Those distressed properties are no longer putting significant price pressures on the rest of the market.
Konter Quality Homes has not sold a new house for less than list price in four months.
“The distressed properties are still out there, but they have been pretty picked through,” Konter said. “We’re no longer competing with foreclosures. Still, that’s no reason to flood the market with product.”
Another check on home building is lending conditions. Banks remain unwilling to front large sums for speculative building — homes built without a contract to a buyer. That will prevent builders from throwing up dozens or hundreds of houses to fill out existing communities.
And no financing is available for those who want to develop new neighborhoods or subdivisions using acquisition-development-construction loans. These so-called ADC agreements were major contributors to bank closures and struggles over the last four years.
Home building growth will be “slow and steady,” Konter said, “with home builders re-entering stalled neighborhoods,” such as the PVC farms.
Increased competition
The home building landscape will look different as the recovery builds.
Local giants, like Konter, Fred Williams, Landmark 24, Lamar Smith, Ernest and Synergy, continue to control more than half the market. But national and regional home building companies will play a bigger role.
D.R. Horton, Beazer and Centex, a division of the nation’s largest home builder, Pulte, moved into the market during the boom of the mid-2000s. Another out-of-town giant, K. Hovnanian, bought into Savannah with its acquisition of Bluffton-based Craftbuilt Homes in 2006. And regional player Mungo Homes, based in South Carolina, started building locally in 2011.
The nation’s largest luxury home builder, Toll Bros., recently purchased The Reserve on Hutchinson Island. Another major industry player, K.B. Homes, is involved in a pair of developments nearby in Bluffton.
The situation is a motivator for the local home builders, Konter said. They have become more “adaptable” in their offerings, from price points and floor plans to materials and amenities, to increase their competitiveness.
“Competition is good,” Konter said. “And with local builders maintaining control of the market through three cycles now — boom, bust and recovery — odds are local home builders will continue to do the majority of the new home sales business.”