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Biggest roadblock for housing market – consumer confidence

By: Denise M. Champagne//August 15, 2011

Biggest roadblock for housing market – consumer confidence

By: Denise M. Champagne//August 15, 2011//

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iStock image used with permission.

Consumer confidence is one of the biggest problems facing the housing market.

While it is a factor nationwide, local builders are not facing some of the other challenges of their counterparts in other states such as a large number of foreclosures or excess inventory.

“Our biggest problem is consumer confidence because they’re reading what’s happening in other parts of the country and the stock market,” said Rick Herman, executive vice president of Rochester Home Builders’ Association Inc.

Coupled with the debt ceiling debate in Congress, Herman said, those factors raise a flag for consumer confidence and people are sitting on the fence a little longer before making homebuying decisions.

He said some are remodeling while they wait, hoping to recoup their investment when they go house hunting in the next year or so.

The remodeling market, according to the National Association of Home Builders, has slipped under pressure from a sluggish economy, but activity in the Northeast is actually up.

The Remodeling Market Index dipped during the second quarter of the year to 43.9 from the first quarter result of 46.5. An RMI below 50 indicates more remodelers report market activity is lower compared to the prior quarter than report it is higher.

“Remodelers have experienced the same hiccup that has rippled through the U.S. economy,” Bob Peterson, NAHB remodelers chairman notes in a release. “After picking up the pace early in the year, the calls from customers dropped off and remodeling slowed down.”

In the Northeast, however, it rose to 48.1 percent from 46.1, just below the West, which had the same first quarter results, but finished the second quarter at 48.2.

“While the RMI indicates that the home remodeling market softened somewhat in the second quarter, this is still the second highest RMI we’ve been able to report since the third quarter of 2007,” says NAHB Chief Economist David Crowe.

Herman said remodeling is going strong in the Rochester/Finger Lakes area, covering Monroe, Livingston, Ontario, Seneca, Wayne and Yates counties.

“We have seen a number of our members bidding more jobs and larger jobs over the last nine months,” he said, noting  people are investing in their current homes, waiting for the market to come back.

Herman said the good side of remodeling is that people are not only improving their homes, but the work increases assessments, which help the tax base.

“They’re good-size jobs,” he said. “They’re not just your paint and wallpaper remodeling.”

The biggest remodeling market in the Rochester area — and nationwide — is in additions. Herman said locally, the second is in kitchen and bath remodeling. He did not have figures readily available, but projected they would be up slightly from a year ago.

“I can tell you what I’m hearing from the members at the RHBA is they’re seeing an OK year,” he said. “It’s not a banner year, but at the same time, everybody’s still in business. We haven’t seen any fatalities at this point.”

Herman said new homebuilding is a little bit lower than last year, partly because of a very rainy spring. He said the number of building permits issued in Monroe County fell by 38, from 359 in the first six months of 2010 to 321 for the same period this year. Herman said probably half of the drop can be attributed to spring weather, which delayed projects.

“Our numbers are all right,” he said. “We weren’t expecting too much this year. We didn’t set high expectations so we’re not overly concerned. The number, to me, is not a big deal. We didn’t anticipate that this was going to be a busy year.”

He said the 55-plus market is hot locally in both rentals and sales, compared to nationally with builders significantly more optimistic about production and demand for multifamily units than for sales of single-family homes or multifamily condos.

All of the components measuring production and demand for 55-plus multifamily rental units increased significantly in the second quarter of 2011 compared to 2010, according to the NAHB. By comparison, 55-plus Housing Market Indices for single-family units and multifamily condominiums were largely unchanged with increases from 12 to 13 and 7 to 8, respectively.

Herman said there is a lot of business in both markets locally. He cited a number of projects including The Villas at Canandaigua and similar ranch-style “empty nester” homes by Wegman Companies Inc. in Greece, Penfield and Webster; the Arbor Ridge luxury townhomes in the Penfield/Perinton area by Pride Mark Homes Inc., in partnership with St. John’s Green House; and homes by At Home Builders, part of the Reidman Companies.

Herman said part of what is happening is baby boomers are downsizing or deciding they do not need to own more than one home, so many are renting or buying smaller, upscale homes with modern amenities and less stairs.

He said some are looking for extra rooms for grandchildren, work areas and retreat areas while some seek open spaces, wider doorways, hand levers and lower counters with plans to stay in their homes longer as they age.

“There’s a number of projects that are on the books or already approved for rental and/or new builds,” Herman said. “We’re in pretty good shape. It’s not good, but it’s not bad either and we see that there’s some light at the end of the tunnel. Our biggest issue is not the markets, because they’re good. It’s the consumer confidence.”

He projects new homes will come in between 500 and 600 for the year, which is similar to the 551 built in 2010, but down from 583 in 2009 and 821 in 2007 when the markets started to drop.

“It will probably be another six months to a year before we see the economy take off a little more solidly,” Herman said. “The political thing is not helping. No matter who you’re rooting for, it’s not good for the economy.”

Joseph W. McIvor Jr. executive vice president of the Buffalo Niagara Builders’ Association is seeing similar trends in the Erie County region.

“I think most of upstate New York is still doing better than the national market and I think that truthfully, the old saying that all real estate is local is probably never truer,” he said. “A lot of markets are holding their own.”

McIvor said the remodeling market is healthy in the Buffalo area too, which he attributes to relatively low mortgage and finance rates. He said people are making their existing homes as livable as possible with the attractive rates.

“I think we’re seeing a number of people that are doing energy-efficient programs,” McIvor said. “There were programs with [New York State Research and Development Authority] and some of the utilities that subsidize some investments.”

He said some people are looking at additions and improvements, noting that a lot of the existing housing stock is more than 60 years old.

“As far as new construction, we were never hotbeds of new construction in upstate New York,” McIvor said. “This year, it seems, that traffic is back out and people are looking and shopping for new houses and realizing new houses are much more energy efficient. If you look at many older homes, they’re not designed for today’s lifestyle.”

He said master bedroom suites have really come into vogue, along with people working out of their homes and looking for office space.

Among the new homes, he said there are lofts being built downtown, which are popular with younger professionals; and patio homes, attractive to an aging population.

“I think that, at least in the Western New York market, we do have an aging population so there have been a number of senior housing complexes that have popped up in recent years,” McIvor said, citing empty nesters downsizing to more luxurious amenities in smaller houses.

“I think that Western New York will probably finish the year fairly close to what took place last year,” he said. “We’re not anticipating Western New York should be severely off from permits issued in 2010. I think the last couple of years; the market has been a little bit softer, but not substantially.”

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