Thursday, August 15, 2013

Proof of real economic recovery-Individuals spending their own money

Great story about the housing recovery.  Economists believe that new home starts are the leading indicator of economic development and growth.  This article proves that we have this happening in the City of New Orleans.  That's a very good sign.

We have read every day since the storm about new developments taking place in the city and region.  When you see individuals, just regular folk, putting their money on the table, that is the evidence of confidence and long term sustainable growth. We see that consumer confidence in every new home on the market.  Very exciting and encouraging.  Read on.

Homebuilders show confidence through spec builds

Homebuilders in the New Orleans area still report a challenging climate for obtaining the money needed to buy and develop property, in addition to covering their construction costs. But they are starting to emerge with enough post-recession confidence to delve into some speculative building.

Hurricane Katrina and the levee failures created a brief window for builders to buy property and, where permissible, put up new housing in areas with high interest among buyers. They included  Lakeview, the West Bank and the North Shore. But before any notable projects could take shape, the mortgage fraud and foreclosure crisis of 2008 took the steam out of most speculative development.

Builders are finally starting to pay for projects out of their own pockets, with strong interest coming from certain areas.

As of early May, demand for new houses on the North Shore had created a construction backlog for Hunter Estess of Estess Contractors. He has recently completed more than 20 homes and has another 10 in the works. Nearly all of them are under contract, he said.

In Lakeview, seven of his spec homes sold before work was even close to finished.

“I can’t keep them on the market past the framing stage,” Estes said.

Favorable interest rates and market conditions tilted in favor of buyers is propelling new residential construction, and builders are cautiously moving past industry doldrums to test the waters.

Jon Luther, executive vice president of the Home Builders Association of Greater New Orleans, estimates about 90 percent of his membership has stayed on the spec build sidelines for most of the past five years. But as they have amassed more contracts to build and established a flow of income, their willingness to put their own money into projects has grown.

“But it’s still place-based,” Luther said. “They aren’t going into areas where they don’t already see demand.”

One of those sites is Lakeview, location of 11 of the 20 houses that were recently part of the HBA’s Parade of Homes. The Parks of Plaquemines, David Waltemathe’s development just outside Belle Chasse, is also drawing builders’ interest, Luther said.

Spec builds are also taking shape at The Arbors, the high-end development Joe Canizaro has established just across from English Turn subdivision. There are already a handful of residences within the 92-acre property where Mason Trendsetters, an Abilene, Texas-based contractor, is erecting a $1.4 million spec home at the entrance.

All homes with The Arbors must have a minimum of 2,800 square feet of living area and preserve at least 50 percent of the property’s wooded setback.

In addition to Mason, Estess is the only other contractor currently building on spec at The Arbors, and his firm is working on multiple projects there. Estess said he eventually hopes to erect eight spec homes a year in the subdivision and envisions reaching that goal no later than 2015.

As for the burgeoning high-end competition across the street, English Turn broker Glenn Mediamolle said he doesn’t expect it to affect interest in his neighborhood. He noted the marked difference between the “two different types of product,” the natural setting of The Arbors and the finished look of English Turn, explaining that they draw different types of buyers.

The same post-recession factors that have created the upswing in spec building are evident at English Turn, where Mediamolle noted “foot traffic is up 40 percent” without providing specific numbers.

Trends in the subdivision show buyers who are building on lots spending about $800,000 on average, and activity involving existing homes is heaviest in the price range above $500,000.

“There’s no question the market has turned,” Mediamolle said. “Things are definitely looking better.”

Luther concurs with that assessment for the new housing market, assigning it a “C-plus or B-minus” for activity in recent months. He said he expects more construction on the North Shore as buyers continue to consume inventory that stacked up during the recession.

But he doesn’t expect any large-scale speculative projects on either side of the lake, with most builders putting up a few houses at a time.

“They’re not going at it roughshod,” Luther said. “They’re building where they know the buyers will be.”

The main obstacle HBA members continue to report to him is strict credit requirements that have limited their access to resources for ADC: acquisition, development and construction. Some builders are also reporting discrepancies with appraisals, which Luther said is leading some to shy away from additional projects when they aren’t seeing the return on their initial investment.

The climate isn’t daunting to Estess, who said he is willing to stick with projects like The Arbors that require patience on the part of builders and investors.

“New developments take a little time to get rolling,” he said. “…But the market conditions are good, and it’s the perfect time to build — and buy.”
Editor Greg LaRose