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Wednesday, Oct. 01, 2008

Home builders feeling economy's pinch

Looking for tangible signs of the credit crunch and economic turmoil across Central Kentucky's landscape?

Here are two: noticeably fewer houses being built throughout the region, and more half-completed houses dotting the landscape.

Central Kentucky home builders say the credit crisis — especially banks tightening up on loans for builders and buyers — is hitting them hard.

Not only are fewer houses getting started in Lexington, fewer homes are getting finished as builders run out of money and can't borrow more from the banks, said Dewey Crowe, director of building inspection at the Lexington-Fayette Urban County Government.

The number of building permits voided because of inactivity for more than 180 days is slowly rising, he said.

Overall, new home construction in Lexington has fallen every year since 2005, and through eight months this year the numbers are way down, according to a Herald-Leader analysis of building permits.

In 2005, builders in Fayette County planned to start 2,469 single-family homes, townhouse units and condo units. That total dropped to 1,235 by 2007.

As of Aug. 31, eight months into the current year, builders had requested only 43 percent of the permits they did last year, making it clear the market continues to shrink.

"Everything is down from '04 and '05, commercial and residential home construction. Commercial isn't down as much, but it is down," Crowe said.

Similar trends can be seen in the counties surrounding Fayette. Woodford County, for example, issued 132 permits for single-family homes in 2006. Through early September this year, only 63 permits have been issued, according to information supplied by the Woodford County Planning and Zoning Commission.

Woodford County home builder Lonnie Brown built about 45 new homes last year. "We're going to do about 35 this year," he said.

But he is also doing more room additions and screened-in back porches. "We're thankful that we're doing what we are," he said.

Tim Haymaker, owner of Haymaker Development Co., said the banks — which not too long ago offered 40-year mortgages that were interest-only for the first seven years — now look with dismay at a glut of unsold homes, sinking real-estate values and a tightening credit market. As a result, banks are reluctant to lend to builders or to hopeful home buyers, he said. That brings everything to a halt.

"I can tell you flat-out, there is nothing selling, nothing," said Haymaker, who has developed residential projects in several parts of Fayette County.

"In 2004, I sold 230 single-family home lots, which was more or less typical. In 2005, I sold 190. In 2006, I sold 84. In 2007, I sold 44," he said. "And this year, so far, I've sold three lots. Anybody who didn't see this coming a while ago was nuts.

"I'm as much against this bailout in Congress as anybody," Haymaker said. "But now it has to happen, because the results without it are going to be so big and so bad that I don't think we can even imagine it now."

Consider the case of James Kelley, a Fayette builder who has two unsold homes — one for $2.5 million and the other for $3.25 million — side by side in Sahalee subdivision off Russell Cave Road north of Lexington.

"I think what's causing my buyers more problems than anything — they're not affected by gas prices, they're not affected by interest rates. But what they are affected by is the stock markets," Kelley said.

Kelley said that the sale of larger homes has been affected by the financial markets drawing up.

"Even wealthy people have a tendency to hold on to their money," Kelley said. "They're conservative people. That's how they got money, normally. Anybody thinks twice before they spend $2 million or $3 million when, every time you turn around, there's another bank collapse."

Kelley said it's clear that many banks are scared by the economic climate.

"And when you're talking to them on the phone, they tell you they're nervous," Kelley said. "It's hard for them to get a gauge on what something's worth when nothing's selling and nobody's got any money. Especially when you get into million-dollar homes. Is it worth $1 million? Is it worth $1.2 million? Is it worth $800,000? They don't know because there are no buyers."

Nevertheless, Kelley said, the downturn has not affected his plans to put a Jack Nicklaus-designed golf course and residential development near Wilmore in Jessamine County. He is preparing to submit construction plans to the Jessamine County planning commission later this year.

"If we started it tomorrow, it would take two years to build a golf course," Kelley said. "We're moving forward. But we're looking some time out before anything is for sale out there."

So what does he think Congress should do?

"I don't think they have any choice," Kelley said. "It's kind of like driving up on a car wreck. It doesn't matter who's at fault. You're going to have pull the people out and try to save them. It's going to have to be done."