Construction, Economic Development, and Real Estate

Residential construction expects brightest year in 'nearly a decade'

February 6, 2013
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Residential construction expects brightest year in 'nearly a decade'
Grand Rapids-based Eastbrook Homes builds new-home communities in Grand Rapids, the Lakeshore, Lansing and Auburn, Ala. Photo via fb.com

The residential construction market rebound should grow by more than one-third this year, according to the region's home builders association.

“I think we will have a lot more sales opportunities,” said Tony Zahn, founder and president of Zahn Builders. “We are already seeing that right now. The consumer is definitely back. I’m expecting growth in 2013.”

The Home Builders Association of Michigan has forecasted that this year’s single family home construction will increase by 39 percent over 2012.

The organization is expecting 13,928 permits to be issued in 2013, which is up from the projected total for 2012 of 10,000 permits.

“With record low new home production for the past several years, pent-up demand is finally beginning to burst through in the marketplace,” said Robert Filka, CEO of HBA Michigan. “When combined with positive tax and regulatory changes that will encourage more investment, our outlook is more optimistic than it’s been in nearly a decade.”

Home improvement and materials retailer Lowe’s seems to agree. The company announced that it will begin hiring 9,000 permanent part-time employees and 45,000 seasonal employees ahead of the spring and summer building seasons. This is about the same number of seasonal employees the company hired in 2012 as new home construction began its rebound.

On average, each Lowe’s store is expected to hire 26 seasonal employees. Michigan Lowe’s stores employ approximately 6,000 people in 47 stores, five of which are located in West Michigan.

The Home Depot is also anticipating a busy spring season. The company plans to hire 80,000 seasonal employees nationwide — including 225 in the Grand Rapids market — to prepare for sales during the period. About half of The Home Depot’s seasonal hires transitioned into regular positions last year.

There are several factors being cited for the new construction rebound, including a dearth of available homes on the market, increased hiring, low interest rates and a new consumer mindset about homes.

Bob Sorenson, vice president of marketing and sales for Eastbrook Homes, noted that the two key industry drivers needed for a rebound — jobs and population growth — continue to occur.

“Last week, Perrigo announced significant potential new jobs in the Holland area,” Sorenson said. “Also, in Allegan we’ve seen a modicum increase in job growth of one percent or one-and-a-half percent. There’s confidence being gained.

“You combine that on top of that we have not produced homes over the last four or five years at the level that would even replenish inventory — that is why there is significant confidence from our perspective,” he said.

Sorenson said that the auto industry rebound has also helped the region.

As people return to work and gain confidence that they will continue to have a job, home buying and new construction will likely result.

He also noted the importance of interest rates, saying that they are the lowest current buyers will ever see in their lifetimes.

The law of supply and demand will encourage buyers to take advantage, and there is still plenty of time before inventory is replenished to the industry average of six months supply of desirable homes on the market, he said.

“All real estate is local. You can’t just say West Michigan,” Sorenson said. “You have to say Forest Hills schools or the Byron Center area or whatever. Many of those markets (have) much less than a six months supply.

"You look at the total inventory . . . the number of listings that are out there right now are significantly less than what they would call an average, so supply is lower," he said. "And if demand goes up — holy cow! — it can only do one thing and that is make the real estate market have life to it, which it hasn’t in a while.”

Sorenson said that new home construction is a long way from its peak, which occurred in 2005-2006. Starting at such a low base means a full rebound will take time, and the scales will be tipped in the buyer’s favor for a while yet.

Zahn said that he thinks that the mindset of buyers has also changed dramatically and that shift will also impact future home construction. He said that his clients are less concerned with the resale component as they plan their new homes, understanding that they need to consider the long term.

“I think it’s come about where people have realized that homes don’t always go up in value, and it really needs to be a long-term commitment,” Zahn said.

He’s noticed that if people are satisfied with the location of their home or have a connection because that’s where they raised their family, they are more willing to spend money on remodeling, even if those costs are unlikely to be recouped later.

“I’ve seen that in new construction as well as remodeling,” Zahn said. “I think that is healthy for the industry as well. People will build homes better. I think it’s a different mindset.”

About 40 percent of Zahn Builders’ construction projects are second homes. He said second homebuilders are not motivated by the same factors that motivate first homebuilders.

“I think that buyer is more driven by timing than anything,” Zahn said. “If they are at that age where they want to build a second home to be a meeting place for their grown kids and grandkids, that is going to be driven more by where they are at in age and the timing. But I do think that buyer is feeling better about spending money.”

As new construction continues to rebound, Zahn said, people should expect to see an increase in materials costs.

He also said people should realize that the price of existing homes has no bearing on the price of new construction. 

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