Builders turn to custom homes in housing crunch

As prices fall for spec housing, custom homes and remodels increase

 

Jerry Roetcisoender of JWR Design in Lynden said he has seen a rise in the number of remodel projects recently, due in part to the slump in spec homes. Custom home projects, however, have remained steady.

 

By now, the effects of the credit crunch on the housing market have been well documented in Whatcom County and around the nation. First-time home buyers are having a hard time getting loans, which has led to a shortage of buyers and a surplus of houses on the market.

In turn, prices are dropping and haven’t shown serious signs of picking up, leaving investors reluctant to enter the market.

Much of that scenario takes place in the spec housing market, where houses are built without an intended buyer. These houses go directly to the market and are therefore more susceptible to market forces.

The market for custom homes, though, is still in good shape, as it has been for some time, said home- builder Gary Reid.

“All the dynamics are there for someone who wants to custom build,” Reid said. “We’ll probably get less profit than in the past because things are slower, but that’s to the advantage of the consumer. I see this as a real positive thing for the customer builder.”

In the 33 years that Reid has been in the industry, he said he has always split his business fairly evenly between spec homes and custom homes. Reid estimates that custom homes represent about a third of the local housing market, though he couldn’t say for sure because it is not tracked. Whatcom County housing permits do not delineate between custom or spec projects. Reid said he likes to keep some spec homes on the market because it allows him to try out different designs and have a house to show customers.

But lately Reid has pulled back on the number of spec projects he does because there are a lot of other spec homes on the market right now.

“I’ve seen my business slow down, but I’ve been in business long enough that I’ve seen a lot of these ups and downs,” Reid said, adding that he is able to weather the hard times doing custom projects. “I’ve always relied on custom building in recession-type times.”

A slowdown for builders, however, is making it easier for Reid to work with subcontractors and finish his custom projects on time.

“We’ve had trouble holding a schedule because everybody was so busy,” he said. “Now we’ll be able to hold schedule better.”

One of the main reasons that custom home building hasn’t slowed as significantly as spec projects is simply because people buying custom homes are not affected as much by the credit crunch, Reid said. The average person looking to build custom is not a first-time buyer, therefore they have some equity built up in another house and are typically in a higher income bracket.

The average custom home that Reid builds is valued in the $500,000 to $600,000 range, he said. The median home price in Whatcom County for the fourth quarter of 2007 was $285,000, a 1.2 percent increase over the 2006 price, according to a report by the Washington Center for Real Estate Research.

 

National markets felt locally

Over the years, approximately half of Reid’s clients have come from out of state and were drawn here by either the quick appreciation of homes or the lure of Whatcom County as a place to retire.

However, the housing markets in places such as California and Arizona have suffered much more than here in the far corner of the Pacific Northwest. Thus, the person who just a few years ago would have been able to sell their house in California and make enough extra money to move to Whatcom County to retire is struggling to even complete the first step — selling their current house.

For Reid, this means that fewer people from out of state are looking at custom houses here.

Jerry Roetcisoender of JWR Design in Lynden said he is seeing the same trend.

“Homes aren’t selling in some other part of the country to free up the capital to come over here and buy another home,” he said.

In fact, the trend started back in the middle of 2006, he said. That’s when he noticed a slowdown in the number of people buying second homes or investment properties in higher end communities such as Semiahmoo.

At the time, this was a great place to invest because of the rapidly rising home values. Such quick appreciation, though, has led to Whatcom County having some of the most overvalued homes in the nation, Roetcisoender said.

“It’s not just 5 percent overvalued, it’s a lot overvalued,” he said, adding that prices are coming back down to more reasonable levels. “So we’re all having to sharpen up a little bit, which is good for the market and good for the home buyer.”

The building industry is still far from a crisis. In fact, now is a good time to think about getting into the local housing market, Reid said.

“It will take the public a while to get comfortable and realize that this is a perfect time to buy because prices are down and interest rates are coming down,” Reid said.

 

Remodeling also strong

As spec home building slows down and first-time buyers are holding off on purchasing, remodeling is becoming more attractive.

“Right now it seems like we have more remodel work than we’ve ever had before,” Roetcisoender said, adding that this is common during economic slowdowns. “During those times we move away from custom homes a little bit and do more renovations.”

In general, remodeling a house is cheaper than buying a new one and is less risky, Roetcisoender said.

“Rather than taking a chance at selling at a lower price, people are deciding that it’s best just to keep what they have and remodel it,” he said.

A slight shortage of land might also be contributing to the rise in remodeling. As more people move to Whatcom County, the supply of home plots with views is diminishing. And with the current state of the market, people are more likely to keep their existing house and remodel it.

“We can add a little and gain a lot,” Roetcisoender said. “When they were building these houses back in the late ‘70s, they had all the room in the world and they had no requirements as far as critical areas and shoreline management. They weren’t very efficient with their space. So we add a few more feet and make it more efficient.”

The number of regulations that are tacked onto new homes is also making remodeling more attractive, Roetcisoender said.

“If we start from scratch today, we’re going to be able to build a lot less than if we remodel what’s there and reuse that space,” he said.

Though the number of first-time buyers has dropped significantly, Roetcisoender said there is still plenty of work to be done in the housing market. The business is there, you just have to look for it.

“In the past recessions, we have always been very busy. So maybe we’ll be alright.”

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