Andreas Kapetanopoulos
April 19, 2021
Deal Watch
CT homebuilders are busier, but struggle to fully seize on hot housing market
HBJ PHOTO | STEVE LASCHEVER
Johnny Carrier, vice president of Plainville-based Carrier Group, a division of the family-owned homebuilding company By Carrier Inc., said he is being cautious about building new homes on spec despite significant demand for single-family dwellings in the state.
By Matt Pilon
Connecticut single-family home sales have spiked over the past year to levels not seen since 2005, but don’t expect an equivalent surge in new construction, area builders say.
While home construction increased notably in 2020, it wasn’t nearly to the same scale as home sales activity. Experts say soaring prices for key materials like lumber and uncertainty about how long the recent demand wave might last have created hesitation in many builders. Some have resisted an admittedly strong urge to take the financial risk to build more speculative homes in order to provide badly needed inventory in a tight housing market.
Home sales volume would be higher — possibly by 20% across the U.S., the National Association of Realtors’ chief economist Lawrence Yun estimated in January — if there was a greater supply of homes on the market.
“If you don’t have something already approved that you’re working on, then you’ve already missed the boat,” said Johnny Carrier, vice president of Plainville-based Carrier Group, a division of the family-owned homebuilding company By Carrier Inc., which completes upwards of 60 homes a year. “Everything we do always has such a lead time to it.”
Carrier said he isn’t entirely sure what to make of the sudden spike in housing demand, which has been driven in part by out-of-state and first-time buyers. He hasn’t encountered a comparable situation, spurred by the unusual dynamics of a 100-year pandemic, in his lifetime, he said.
“For as fast as this firestorm came up, it could all crash tomorrow,” he said. “It doesn’t take much to upset it.”
Material volatility
Lumber prices have soared over the past year, which has added $24,000 to the cost of an average single-family home, the National Association of Home Builders said recently.
As of March, the producer price index for softwood lumber was sitting at a record high, up 103% from March 2020, according to the U.S. Bureau of Labor Statistics.
George LaCava, a principal at Cromwell-based Trilacon Development Corp., said he’s felt the pain of those increases, which have forced him to raise the price of some homes he’s built recently just to break even. However, he’s had to eat the higher costs a few times for contracts that were already signed with a customer.
“It’s difficult to get people to sign escalation clauses for materials,” LaCava said.
He said he’s also seen the price of interior doors increase by more than 50%, and appliances such as refrigerators have been delayed by months in some cases due to pandemic-related supply chain disruptions.
While LaCava was far from satisfied with the pace of construction demand in Greater Hartford over the past decade or more, he nevertheless has decided to wait out some of the current volatility and uncertainty.
The situation is frustrating, he said, since the housing demand presents an opportunity that his industry hasn’t seen in a long time.
“We never really recovered from the Great Recession in Connecticut for homebuilding,” LaCava said. “It’s just too bad we finally get a little increase here in the state and business starts moving and then you’ve got to deal with all these other things.”
Bank lenders have taken note of the materials challenges, fueled in part by homebuilding increases across other parts of the country.
Andreas Kapetanopoulos, Connecticut president for New York-based NBT Bank, which began lending here several years ago and is working with a handful of subdivision developers in the region, said his bank is focused on financing well-established builders.
“It’s the ones who have the experience, the liquidity and deeper pockets, so if cost overruns or other circumstances come along they can address that,” Kapetanopoulos said.
“The demand is there and we’re seeing it and I think it’s sustained as well, but you still don’t want to get ahead of yourself,” he added.
While Connecticut single-family home sales volume has nearly doubled from a recent low of just over 21,000 transactions in 2011, home construction permit activity has risen by just under 48% over that same period, and permit volume is down significantly from the years leading up to the Great Recession as well as from prior decades’ peaks, according to data published by the Warren Group and U.S. Federal Reserve Bank of St. Louis.
“It’s just the economy of Connecticut and the increasing spending and taxes and people moving out,” LaCava said. “It won’t change until we really get our state economic situation under control and businesses find it attractive to be here.”
Not sitting it out
While builders have been frustrated by high materials costs and other challenges, federal housing permit data compiled and published by the St. Louis Federal Reserve shows that Connecticut home construction activity in 2020 was at its highest levels since 2008.
Seasonally unadjusted single-family building permits in Connecticut last year totaled 3,042, up more than 17% from 2019 and about level with 2008 totals.
The permit peaks in the 2000s and 1990s were 9,139 (in 2004) and 9,578 (in 1998), respectively, according to the St. Louis Fed.
“Almost every builder that I’ve spoken to is as busy as they’ve been in a long time,” said Elizabeth Koiva, president of the Home Builders & Remodelers Association of Central Connecticut and owner of Tolland-based Nordic Builders, which focuses on custom homes.
No matter how well the COVID-19 vaccines perform, Koiva suspects there will be a permanent shift in the number of people working from home over the longer term, and that will continue to drive demand for homes and dictate elements that are most desirable within them, including more work spaces.
“I think more and more people are realizing they can work at home and their companies are allowing them to work at home,” she said. “They want to change their environment.”
Realtor Bill Arzt, broker/owner of Enfield-based CT Hometown Realty, said he’s noticed, at least in his northern Hartford County turf, an uptick in subdivision builders willing to start more spec homes following an increase in sales lately.
New homes tend to sell more quickly than existing homes, though dwellings in each category are spending far less time on the market now, he said.
Across the country, 2020 was the strongest year for sales of newly-built homes since 2006, according to a recent report from Zillow.
“If we could get more new construction that would help us,” said Arzt, who has approximately 50 full-time and part-time agents in his shop.
He’s sympathetic to the fact that many builders are uncertain about ramping up their pipelines.
“The larger builders that have things in their pipeline are going to be OK,” he said. “Where it’s tough is those smaller builders who rely on buying a parcel and subdividing it, or buying a couple of approved lots and building on them. Even the lots are going for a premium right now.”
He can also only guess how long the single-family market will remain hot, though he’s convinced 2021 will see more new homes built than 2020 did.
“You can talk to 10 people and get 10 different opinions,” he said. “No one really knows, you just have to ride the wave.”
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