Mike Pattison just took his own advice and bought a new home in the Silver Lake area.
He bargained hard for a lower price and even convinced the builder to throw in furniture.
“I’m a believer in our message,” said Pattison, who works for the Master Builders Association of King and Snohomish Counties. “It’s a great time to buy.”
Here’s why: Interest rates are relatively low and builders may never be as eager as they are at this moment to offload homes.
People worried about the economy aren’t buying. Builders who scooped up land a few years ago during the hot market are now stuck with inventory they can’t sell while the loans used to finance those projects need to be paid off.
Builders are in survival mode, Pattison said. Most are laying off workers and a few have filed for bankruptcy. Those with some cash are trying to hold out for a better market.
Most are doing everything they can to entice buyers, including slashing prices, paying closing costs and offering upgrades. In other parts of the country, it’s not uncommon for builders to leave a new car in the driveway, but in the Northwest it’s primarily a price battle, he said.
Builders are motivated to make a sale but most have already slashed prices by thousands and can’t go any lower, said John Wahl, who works with builders and developers at Pacific Northwest Title.
“Builders are just trying to work their way through those projects,” he said.
Land values in the Marysville and Lake Stevens area have dropped around 45 percent during the last 15 months. Other areas closer to job centers have experienced about a 20 to 25 percent drop in value. Builders who bought when land prices where higher are stuck competing against developers who bought land cheaper, Wahl said.
Builders also have to contend with banks that may have repossessed projects from builders and are now selling those properties at fire-sale prices. Wahl said he knows of at least one builder who lost a home sale to his own bank.
Meanwhile, construction of new homes in the county has slowed to a dribble. In 24 years with the county planning department, manager Tom Rowe has never seen permit applications so low.
Snohomish County records show how much building has slowed. Applications for new and manufactured homes peaked in 2005 at 4,469. So far this year builders submitted 1,206. Applications for subdivision developments are down too. Two years ago, builders applied for 210 subdivision permits. Last year, the number dropped to 77 and applications so far this year total 13.
The planning department has begun tracking permits on a weekly basis partly to make sure the office has enough staff to handle work if building picks up. The county laid off a large number of the people who work in his department. Rowe said the number of permits don’t indicate new home building is picking up.
“We are seeing some foreclosures and some projects abandoned,” he said.
Building is so sluggish, several experts interviewed for this story predict it will create a shortage in a few years.
Todd Britsch, president of real estate research and consulting firm New Home Trends, predicts a Puget Sound housing shortage by 2012 and double-digit appreciation the following year.
The supply of buildable lots in Snohomish County has swelled to more than three years, Britsch said. A healthy supply is 18 months or less. However, with the right conditions, it won’t take long for buyers to chew through that supply.
It takes about three years to turn raw dirt into a home and builders won’t be able to meet the demand for many reasons. He predicts as many as half of the building projects in progress may get dumped as builders go out of business. Those who would like to build will have a tougher time getting a construction loan since banks have tightened lending.
The municipalities that handle building permits, pared to the bone with layoffs, won’t have the staffing to handle the upsurge in work, which will cause further delays.
Meanwhile, he expects more demand for housing as a surge of new residents from other states, particularly California, move to Washington, he said. Job growth in the Puget Sound is expected to rebound, too.
“Are we in the worst economy this country has seen for 60 or 70 years? Sure,” Britsch said. “We also flourished in the last few years and what comes up, must come down.”
The only thing that would convince him otherwise is a full-blown depression, which he said is unlikely.
That leaves builders who can weather today’s turbulence well-positioned for later, Pattison said.
Right now, it’s not just builders suffering, he said, but everyone associated with the building trade, including banks, real estate, construction trades, businesses that supply and support builders and local governments who benefit from building fees and taxes.
“The lesson to be learned is how important construction and housing is to our economy,” Pattison said. “It’s the lynch pin.”
Reporter Debra Smith: 425-339-3197 or dsmith@heraldnet.com.
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