published Saturday, February 5th, 2011

Home builders see rebound after five year housing slump

  • photo
    Staff Photo by Jenna Walker/Chattanooga Times Free Press Humberto Hernandez places boards on top of an unfinished house in Sedman Hills in Soddy-Daisy. The neighborhood currently is undergoing construction on several new houses.

The recession may have officially ended in 2009, but the hangover from the worst housing slump in decades pushed home starts down in the Chattanooga region for the fifth consecutive year during 2010.

"Residential building starts began picking up last year until the fourth quarter when the market sort of died," said Dale Akins, president of Knoxville-based MarketEdge, which tracks the home building industry across the midsouth. "The good news is that demand levels are now improving and the unsold inventory is down, so homebuilders should have a pretty good spring this year."

The National Bureau of Economic Research declared that the recession ended in June 2009 when economic growth turned upward for the first time in three years.

But Akins said adverse weather and credit markets late in 2010 and the end of home purchase tax credits last spring undermined the hoped-for recovery last year.

Commercial building starts also slowed last year.

The value of overall construction in Chattanooga reached a record high of $573.2 million in 2007 but totaled only $79.2 million in 2010, city figures show.

Ready for rebound

CHATTANOOGA BUILDING PERMITS

The value of new building permits issued in Chattanooga has declined steadily since the yearly peak reached in 2007.

2010 — $79.2 million

2009 — $186.5 million

2008 — $487.7 million

2007 — $573.2 million

Source: Chattanooga Building Inspection Department, City Department of Public Works

From its peak of 10 percent a year ago, unemployment in Hamilton County dropped to 7.7 percent in December. It's likely to fall even more this year as Volkswagen, Amazon, Alstom Power and Wacker Chemical build and expand their local staffs.

Builders started 1,275 homes last year, just 28 percent as in the boom year of 2005, according to MarketEdge. But those still building homes are optimistic the worst is behind them.

"I definitely think we've bottomed out, and I feel very good about 2011," said Mike Moon, president of the Home Builders Association of Southern Tennessee. "Our inventories are down to more normal levels, and with all the business activity that is coming to Chattanooga, we could see a strong rebound over the next several years."

Based on the experience of other Southern cities that have landed automobile plants similar to Volkswagen, Moon said home starts could even bounce back to the robust levels of 2005 within three to five years.

Winn Pratt, a partner in the 13-year-old home building firm of Pratt & Associates, said his company already is enjoying record sales. With more than a dozen developments, Pratt sold 99 new homes in the Chattanooga area last year — up 20 percent from 2009 and the most of any local home builder.

"We were very fortunate that last year was our best year ever, and we expect to be up another 15 percent or more this year," he said.

With fewer builders and housing starts, the inventory of new homes has shrunk over the past year and a half.

In March 2009, Hamilton County had nearly a 10-month supply of unsold new homes. That's down to six months now.

In hot-selling areas of Ooltewah, East Brainerd and Soddy-Daisy, there is less than a four-month supply of unsold new homes — or less time than it takes to build most houses.

"We're not going to have a roaring rebound out of this recession, but we're definitely on the path upward now," said Jay Bell, president of Bell Development Co., one of Chattanooga's biggest home building companies.

Commercial cutbacks

Nationwide, overall building activity remains sluggish. The U.S. Department of Labor reported Friday that the construction industry shed another 32,000 jobs last month, boosting the industry's jobless rate in January to 22.5 percent.

Terry O'Sullivan, president of the Laborers' International Union of North America, said the 1.9 million unemployed construction workers "represent America's potential — an army that stands ready to rebuild our crumbling basics."

The Chattanooga area should fare better than many markets in laying such a foundation for growth, however. In the next couple of years, Wacker Chemical plans to add a $1.45 billion production plant in Charleston, Memorial Hospital is planning to spend up to $380 million to expand its Glenwood and Ooltewah facilities, and Amazon will spend nearly $150 million on new warehouses in Hamilton and Bradley counties.

"I think Chattanooga could become a kind of a boom town," Moon said.

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