Nine Months After Hurricanes, Construction Costs Still Up

Carl Mabry, president of Bluff City Community Development Corp., a nonprofit development company in Memphis, Tenn. focusing on low-income housing, says that he has seen the prices of construction materials rise about 40% from 2004 to 2005, with much of the increase attributable to the shockwaves felt throughout the Southeast in the wake of last season’s unusually destructive hurricane season. As a result, it has cost about $5,000 more per unit to build his latest apartment project, which in April was $500,000 more than it was originally bid because of the increased cost of lumber, steel and other building materials. Price pressures from last year’s hurricanes have been especially noticeable with materials involved in repairs, such as roofing, and those that are produced from petrochemicals, said Mark Billingsley, executive director of the Memphis Area Home Builders Association. “While the impact of the hurricanes will be felt for years or even decades, some of the hurricane-induced problems are likely to ease within a few months,” he said. “Some slowdown in residential construction also is in store, and some new capacity for producing materials can be expected to come online in 2006 and 2007.” (www.memphisdailynews.com)
Memphis Daily News (4/25/06); Andrew Ashby

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Costly Components

Although builders in Tulsa, Okla. previously feared that reconstruction of the storm-battered Gulf Coast would drive up the costs of construction materials and limit their supply, so far any price increases have stemmed from other factors. Cement, for example, has been squeezed by rising demand in this country and in China, which is in the midst of an economic boom, according to NAHB economist Michael Carliner. “There have been widespread shortages of cement and concrete products since the spring of 2004,” he said. Metals such as steel have also been driven up by demand in China, he said. “Unlike the U.S., China doesn’t have a lot of old cars to provide scrap,” said Carliner, “so they’ve been buying up steel scrap, as well as copper scrap and aluminum scrap, from around the world.” Increases in materials prices are responsible for a 2%-3% increase in home prices in the Tulsa area over the past year, according to Wayne Farabough of Perfection Homes, who points out that labor is a more significant factor for the cost of a new home. (www.tulsaworld.com)
Tulsa World (5/3/06); Robert Evatt

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Reasons Change for Refinancing

For the first time in five years, borrowers as a group are paying higher rather than lower interest rates after refinancing their home mortgages, according to a Freddie Mac review of refinancing activity during this year’s first quarter. At a time of rising mortgage rates, many home owners are refinancing to switch over from adjustable-rate to fixed-rate loans, and they are leaving the table with some of their equity to consolidate debt, pay for home improvements or buy a beach house. About 88% of people refinancing their homes took out loans for at least 5% more than their original balances, according to the report, which is the highest cash-out refinancing activity since the third quarter of 1990, about the time when the real estate boom of the late 1980s ended. However, the dollar amount of refinancing loans has been heading down. Home owners took $59.6 billion in equity out of their homes in the first quarter, down from $70.9 billion in the last quarter of 2005. (www.washingtonpost.com)
Washington Post (5/3/06); Kirstin Downey

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Economist: Slowing Market Not a ‘Bad Story’

Although he expects purchase mortgage originations to recede this year to the levels of 2003, Doug Duncan, chief economist at the Mortgage Bankers Association, says that the market is “normalizing.” As part of that process, house-price appreciation will slow to the 6%-7% range this year; prices could slip in some local markets; more borrowers will switch from adjustable-rate to long-term mortgages; and delinquencies will be up. As a leading indicator for the rest of the nation’s housing, Duncan pointed to condominiums, which have the most price volatility, and he said that today’s supply of condos has climbed to seven months from a three-month average and their price appreciation has been falling more rapidly than any other housing segment. Higher mortgage delinquencies are likely because half of all loans are less than three years old and mortgages are most likely to become delinquent in the third to fifth year. Also, lending to households with lower credit quality has been the largest growth area for mortgage lenders. Even so, he does not expect rising delinquencies to have a major impact on the overall housing market. Duncan also noted that 34% of all U.S. households own their homes outright and that 48%-50% have a fixed-rate mortgage, leaving only 16%-18% exposed to the risks of rising interest rates. (www.inman.com)
Inman News (5/2/06); Jessica Swesey

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Computing the Commute

Residents in the Minneapolis-St. Paul area who have moved to the outskirts because of housing prices are now asking some hard questions in the face of skyrocketing gasoline prices. “The old maxim, ‘Drive till we can afford it,’ may be softening,” said Michael Noonan, division president for one of the top national home builders operating in the area and a vice president of the Builders Association of the Twin Cities. “The rising cost of gas is adding a dimension that people didn’t used to consider as carefully as they do today.” Although it meant a long drive to work, Angie Rimbo and her husband bought a new $140,000 home that was halfway to St. Cloud because it was $50,000 less expensive than some older ones they had seen. But since moving in January, their monthly gas cost has averaged $500 and they are wondering if they can afford to live so far out. Responding to the problem, Scott Bernstein, president of the Chicago-based Center for Neighborhood Technology, is working with the McKnight Foundation and the Brookings Institution to assemble a data base that will enable prospective buyers to type in the location they are considering and find out what the transportation will cost them. (www.startribune.com)
Minneapolis-St. Paul Star-Tribune (4/30/06); David Peterson and Laurie Blake

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Target to Appeal Edina’s Wish for SuperTarget With Housing

Target Corp. is appealing a decision by the 10-member Edina, Minn. Planning Commission turning down a proposal for the company to tear down an existing store in the affluent city and build a 196,000-square-foot super Target with a grocery because it refused to add a small number of affordable housing units or small retail shops behind the store. “It sounds like a good idea in concept, but in the real world, think of the lights on all night, trucks coming and going and noise from the fans required to cool the groceries, said Edina Mayor Jim Hovland. The mayor also said he doesn’t think the city has the authority to require Target to include affordable housing in its development project and that he’s inclined to support the redevelopment in order to update the look of the store. Minneapolis-based Target already owns the land, which is zoned for retail, and the only variance it is seeking is on the amount of parking spaces needed per square foot of store space. (www.twincities.bizjournals.com)
Minneapolis-St. Paul Business Journal (5/1/06); Sam Black

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