[Editor’s note: This is part of an ongoing Citizen series on how debt and mortgage problems and the slowdown in the economy are affecting local markets.]
By Kirk Ross
Staff Writer
As the subprime mortgage crisis morphed into a debt crisis and led to a slowdown in housing markets across the country, many here were optimistic that the area would once again be insulated from the fallout.
The dynamic of a growing university, an attractive public school system and a market that by nature has a good deal of turnover remains. But the optimism that the local market would ride out the storm unscathed has waned. Even the most upbeat realtors will acknowledge some pain. Many are leading sellers through what Weaver Street Realty’s Gary Phillips describes as “reality therapy,†telling them to expect much more time on the market and a more modest assessment of the return one can expect.
But while realtors and sellers are being hard hit, the worst of the impact is being felt by homebuilders, especially mid-sized builders who have been riding the housing boom in Chatham County (see article this page).
Nick Tennyson, executive vice president of Home Builders Association of Durham, Orange and Chatham counties, said that the slowdown has created a large inventory of homes. Spec house builders and builders who need to keep large crews busy are finding more and more of their cash tied up and are having to make large monthly payments on homes they’d hoped to have sold by now.
Making that worse, he said, is that the glut is being seen in larger homes. “How many people want something priced $750,000 to $800,000? The pool of buyers is not as deep.â€
Once recently passed federal legislation raising the cap on jumbo loans from $450,000 to $750,000 takes effect, that may ease somewhat, Tennyson said, but for now it’s a buyer’s market and buyers are in a mood to negotiate.
“The other big negative,†Tennyson said, “is people who have decided they want to live here, but have got a piece of property they’ve got to sell somewhere else.â€
Tennyson said there is some hope on the horizon with predictions that nationwide the market will finally bottom in the third quarter of this year.
Michael Chandler, a local custom builder who works on only a few homes a year, said local builders are seeing a lot of clients adjusting their timetables.
“Many are not motivated to get started,†he said. “There’s a loss of urgency in buyers.†The media has fueled the sense, he said, that it’s an “ultimate buyer’s market.â€
Builders around here have gotten a bit unaccustomed to having clients balk at prices, Chandler said. “It used to be you’d say, ‘Here’s what it’s going to cost.’ Now we’re being pressured on price.â€
Still, he said, the Triangle market is among only a few nationwide that are holding their value, and locally the market continues to appreciate.
But the downturn is likely to force some changes for local homebuilders. Spec builders are hurting and people with investment property better be in for the long haul, Chandler said.
Phillips said the spec builders are feeling the squeeze.
“There’s way too much inventory,†he said. Small artisan builders continue to do well, but those who need to stay on a pace of 10 to 20 houses a year, he said, are having to make tough choices as they absorb monthly payments on homes that haven’t sold.
The Chapel Hill-Carrboro market is slower but still fairly healthy, Phillips said, but Chatham is a different story.
“Cash has become king in a way we haven’t seen in a long time,†Phillips said.
In his own business, Chandler has taken on some remodeling jobs, a move many builders may have to consider, even though the profit margins on smaller remodeling jobs are nothing like that for a house.
Locally, the market shift, concerns about the size of one’s carbon footprint and the soaring cost of energy may accelerate the market into more green remodeling and green building.
“There’s a great opportunity to move into green remodeling,†Chandler said. “Enough with McMansions. How about some more energy-efficient remodels.â€