The single-family housing market is finally turning the corner after dipping to historic lows, according to economists. After reporting a 23% increase in production last year, the National Association of Home Builders (NAHB) is anticipating an increase of about 26% this year. David Crowe, chief economist for the NAHB, attributes the recovery to a rise in housing prices, which have increased at an annual rate of 6% to 7% over the last year.
“That is providing buyer confidence that homeowners can purchase a home and not see it decline in value,” says Crowe. “Plus, it has provided more equity to those current homeowners who were unable to sell their home because the mortgage value was greater than the value of the home.”
Another factor affecting the single-family housing market is a drop in foreclosures, Crowe says, which happened for two reasons. First, the foreclosure inventory has been reduced. Second, this inventory is more concentrated. In fact, half of the foreclosures are located in five states: New York, New Jersey, Illinois, Florida, and California.
“Foreclosures have been a significant issue, but it is rapidly weaning,” says Crowe. “It’s become less of a concern across the country as a whole.”
Years ago, homeowners sold their homes after they built their new houses, says Greg Krzyston, president of Great Lakes Electrical Contracting, Inc. in Toledo, Ohio. That’s no longer the case, he says, because banks won’t lend money on specs. Builders with deep-pocketed investors, however, are forging ahead with the construction of single-family spec houses and then turning around and selling them.
Single-family housing starts are beginning to rebound (Chart), and that is good news for the electrical industry, says Crowe. NAHB estimates that for every 100 single-family homes that are built, 300 jobs are generated, half of which are in construction.
The hot spots in the country for single-family housing tend to be those areas tied to the energy industry like Texas, Louisiana, Wyoming, and the Dakotas. However, the NAHB is also seeing strong growth in markets that had collapsed such as California, Arizona, and Florida. These states show a strong percentage increase due in part to the fact that they were at a very low base, says Crowe.
Those builders who are constructing new homes nationwide are hiring electrical contracting firms to install the latest low-voltage communications technology and energy-efficient equipment and controls. According to NAHB’s survey, prospective homebuyers are looking for exterior lighting systems, indoor lighting control systems, wireless home security systems, programmable HVAC equipment, and Energy Star-rated appliances.
Great Lakes Electrical Contracting, Inc., a family-owned business founded in 1987, is also increasingly being asked to install LED-based lighting equipment, whole-house generators, and geothermal heating systems for custom homes in Ohio and Michigan.
When looking for a new house, homeowners are not only looking for certain features, but they’re also seeking more square footage. The NAHB has found that slightly larger homes are being built and sold, not necessarily because of homeowners’ preferences, but because of those who can afford to buy new homes.
“Only those people with very good credit are able to buy,” says Crowe. “There is a bias in the home purchasing market right now due to the restrictive underwriting requirements for mortgages. We are seeing a little more expensive home being sold than has been true in recent history.”
Krzyston has also found the same trend — that those people with a lot of money just keep on building. The segment of the market most affected by the slump was the middle-income bracket, and for awhile, builders stopped constructing $300,000 to $500,000 homes in his area, he says.
“The market went to nothing during the 2008 slump, but the large residences have always been there,” says Krzyston. “The very small houses were also being built, but even that was a bit slow for awhile. Recently, however, the middle income market has come back a lot.”
The residential new construction market used to comprise about 80% to 85% of the contractor’s business. Now only half of its market segment is residential. Once the new construction market slowed down, Great Lakes Contracting began pursuing other types of residential work like remodeling, rewiring, and general service work in homes. As such, the company increased its volume while at the same time, diversifying its services. Now the contractor is ready to handle the influx of new construction work in the residential arena as builders and homeowners gain the confidence — and the capital — to build new homes again.
Fischbach is a freelance writer based in Overland Park, Kan. She can be reached at [email protected].