Can We Rebuild the New Construction Market
Information for Buyers

By: Robbie Miner, Sears Real Estate

If you happen to run into any history teachers ask them, “Does history repeat itself?”  My guess is you will get a definitive “Yes.” The real estate market, like history, is cyclical. Think back to 2002 when you could see new homes going up everywhere. In 2002, new homes made up 38% of all sales in Greeley/Evans. A record 890 new homes were built and sold that year. Last year, new homes made up only 7% of total sales in Greeley/Evans. What went wrong?

The dramatic decrease in new home sales can be attributed to many factors, but in my opinion it is all about affordability. Surprisingly, affordability is also the leading factor to the success that local builders experienced in 2002. Many buyers relocated to Greeley; not only could these buyers purchase a new home, they could purchase a larger home for the price.

In 2006, the Greeley/Evans had only 285 new home sales, down from 512 in 2005. What caused this drop? The market as a whole was depreciating while at the same time, the cost to build new homes was going up while the market values were going down. Builders were sitting on over-priced lots, too much overhead and an over-priced product. In 2009, bank owned properties made up nearly 50% of total sales. These became the new “affordable” product. Between 2006 and 2009, the gap in price had become too large for the builders to compete with existing market inventory.

Over the last year, we have seen inventory levels of homes for sale decrease. Supply vs. Demand has shifted in this market. Ask any buyer that is currently looking for a home how it is going, and they will tell you that it is harder than they would have imagined to find a home. It is now common for buyers to experience competing offers on homes and some homes selling for more than the asking price. For the first time, I am having difficulty finding the supply to meet the demand of my buyers.

The National Association of REALTORS states that on average, homeowners move every five years.  Many potential sellers are “upside down” on their current homes and many of these people want to move, but they are forced to stay in their homes and hope for appreciation. The inability of these owners to sell has limited our market supply. As an example, if you are a buyer looking for a 3 bed, 2 bath home in Greeley/Evans between $160-180,000 you only have 66 homes available. But wait! 25 of those homes are under contract so you are left with only 41 homes in all of Greeley and Evans to choose from.

How can the housing industry meet this demand? Build new homes for buyers! However, construction financing has become almost non-existent and it is difficult to compete with foreclosures. Land costs have finally come down and task forces have been put in place to find ways to reduce permit fees. Every material used in the construction of a home is tied directly to jobs. On average, the equivalent of 7000 man hours goes into the construction of a single home with 45 separate businesses benefiting from the construction. After five years of looking at distressed properties on the market, the buyers are ready for that “new home smell”.

Currently there are only two builders rolling out affordable new homes for buyers in the greater Greeley area. Journey Homes and Baessler Homes. Both builders offer product starting in the $160’s and both are optimistic. “We are excited to offer a high quality product to homebuyers at an affordable price”, said Jamie Baessler, Vice President of Baessler Homes.

While new construction may be far from the pace of 2002, I believe that we will continue to see more builders offering choices for homebuyers within the year.  After all, history repeats itself and that is something we can build on.