Columbia housing market overbuilt

There are 437 new homes for sale, which total more than $88 million in unsold inventory.
Monday, August 7, 2006 | 12:00 a.m. CDT; updated 1:39 p.m. CDT, Monday, July 21, 2008

Columbia has too many new homes on the market, which some builders and Realtors say might force anxious builders to cut prices.

Some of that anxiety is typified by Rhonda Carlson, the owner of C&C Construction. She said the new construction market is overbuilt.

“In certain subdivisions, there’s just a lot of For Sale signs,” Carlson said.

Carol Van Gorp, CEO of the Columbia Board of Realtors, said the Multiple Listing Service indicates that 437 of the 1,528 homes available in Columbia are new. Using the sales numbers from the past couple of years, that figure works out to roughly a 7½-month supply of new homes.

Based on the average new home price of $200,000, Columbia is dealing with more than $88 million in unsold inventory.

In a July 9 letter to builders, Realtor Rob Wolverton cited the 7½-month supply.

The supply is “not dramatically out of line,” Wolverton said. “It’s too much, but it’s not anything Earth-shattering.”

It will take a reduction in new home construction to correct the surplus, Wolverton said. He said that will allow the market to absorb the excess.

“That process has already begun,” Wolverton said. He noted that the number of new, single-family residential building permits issued in the first half of this year, 356, is down from the 569 issued during the same period last year.

The soft housing market is also a problem nationwide. In a June 27 article, the New York Times reported that at the end of May, 6.3 million homes were for sale, which represents a 6½-month supply. In the article, the National Association of Realtors said that was the largest monthly total since May 1997.

Wolverton said excess supply simply makes it harder to sell new homes.

“It increases the amount of competition that there is for buyers that are in the market,” Wolverton said. “People producing the product are going to have to do a little bit better job.”

In his letter, Wolverton suggested using smaller lots and multi-level floor plans that are more economical. He also said Realtors should begin using adjustable rate mortgages, instead of relying on traditional 30-year fixed-rate mortgages.

“The interest rate at the beginning is less than what a typical 30-year fixed mortgage is,” Wolverton said. “It’s more attractive to potential home buyers.”

That type of mortgage hasn’t been used for a while because interest rates were relatively low. As rates increase, the gap between fixed mortgages and adjustable ones also increases.

Carlson said builders stand to lose the most if a house doesn’t sell.

“The market will correct itself to some degree, but I don’t know that it will be without some pain,” Carlson said. “Some builders won’t be around next year.”

For C&C, though, the pain won’t be as severe.

“I saw this coming in October,” Carlson said. “We’ve been fortunate not to have too much inventory.”

Wolverton said selling a property for a reduced price cuts down on the costs of holding vacant property, including interest, insurance, utilities and lawn care.

“If you get prideful and hold on to your product until winter, you should prepare for a significant haircut,” he wrote in his letter.

Realtor Carl Freiling, who mainly works in Ashland and southern Boone County, said the problem there only began around late May.

Freiling said that the number of new homes in Ashland isn’t unusual but that he’s had fewer showings, which ultimately results in fewer home sales.

He predicts that, like Columbia, the number of new home permits will decline and buyers will return.

“At a certain point, folks get over their jitters,” Freiling said. “It will take a matter of months, not years.”

Freiling said Ashland presents a different market because of its small community setting with quality schools.

Columbia’s market is still good, Carlson said, but existing homes are what’s selling, not new construction.

“If you’re in a subdivision with a lot of new construction, you’d better be prepared to wait around awhile,” she said.

Van Gorp stressed the continued strength of Columbia’s housing market. In the first half of 2006, 356 new homes were sold, compared with 353 in the same period of 2004, which she said was a banner year.

“We’re at record-breaking numbers at this point,” Van Gorp said. “Our market is as strong, or stronger, than ever.”

In his letter, Wolverton said the current market is “the most unusual market” he has seen since he began selling real estate in 1995.

“We’re selling just as many houses as we’ve ever sold,” Wolverton said. But, he said “it’s unusual because of the amount of anxiety that is in the market.” He compared Columbia’s situation with the correction in the stock market in 2000.

“My advice to builders is to view 2006 as the end of an incredible cycle in the Boone County real estate market,” he wrote. “The market has not collapsed. We are just seeing a return of some of the incredible gains made in 2002-2005. 2006 needs to be viewed as a year in which making any profit should be viewed as a successful year.”

Van Gorp said part of Columbia’s strength is because it’s not a boom or bust market.

“We just have not had that meteoric surge,” she said. “Columbia has been slow and steady as she goes.” She noted that Columbia is still well behind the median home prices for the Midwest and the nation.

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