Mike Turner on the Treasure Valley's strong seller's market
It’s a good time to be a Treasure Valley home builder.
New home sales and median home prices are up sharply from a year ago. In Ada County, demand for new homes increased in the first quarter, with February sales up 25 percent from a year earlier, thanks in part to a small increase in listings.
Mike Turner, owner of Front Street Brokers in Boise, says he talks to home shoppers who see new construction springing up across the Valley and think there’s an oversupply. But inventory has not grown much, because homes are either presold or are getting snapped up shortly after reaching the market.
“Everything is selling,” Turner says. “Consumers think it’s getting too hot, but inventory is still low, and as long as that’s the case, the market is healthy.”
21.5% Increase in dollar volume of new homes sold in Ada County in 2015. Intermountain Multiple Listing Service
14.3% Increase in dollar volume of new homes sold in Canyon County in 2015. Intermountain MLS
Of course, what’s good for builders and homeowners seeking to sell high is bad for buyers seeking to buy low. An even tighter inventory in existing homes helped boost median prices 10 percent in both counties in 2015, making homes for people of modest means even harder to buy.
Coleman builds in the $135,000 to $700,000 range. CBH Homes, Idaho’s largest builder, sells mostly under-$300,000 homes.
Coleman owner Thomas Coleman says he plans to increase production to 300 homes this year. Coleman Homes’ land bank allows the company to expand building when conditions are favorable — as they are now — or to cut back if the market suffers. Owning 4,000 vacant lots in the Treasure Valley — an eight-year supply — protects Coleman Homes from paying more if land prices rise and gives the company chess pieces to move if the market shifts, he says.
Owning 4,000 vacant lots in the Treasure Valley creates options.
Right now, Coleman is starting to build The Oaks, a 1,400-lot subdivision near McMillan and Black Cat roads in north Meridian. Thomas Coleman says plans for The Oaks can change to fit shifting consumer tastes. Coleman Homes can also sell lots in The Oaks to other developers if needed, Coleman says.
“Over a 10-year build-out period, we’ll see some highs and lows,” Coleman says. “One of reasons we like planning communities is that we can somewhat insulate ourselves from that. If one part of market is softer, hopefully we can cater to the others.”
There’s a lot of demand, and very little supply. Buyers are having to work hard to find a home.
Mike Turner, owner of Front Street Brokers
Unlike Coleman’s first year in Idaho in 2009, when it sold fewer than 15 homes, the builder is now large enough to finance more land purchases and construction projects. It built 203 homes in the Valley in 2015, with Meridian as its largest market.
Most small builders are limited to building a small number of homes, often on a speculative basis, meaning they shoulder the risk of financing and building homes before showing and selling them. Coleman has risen to the developer level of the real estate game, able to show model homes and ink buyers to contracts before moving dirt or pouring foundations.
While smaller builders plan for construction underway or planned for the next year, builder-developers face tougher calculus in projecting what the market will look like several years out.
About 85 percent of Coleman homes are presold, limiting the company’s risk, Coleman says.
“We’re trying to look to the future,” he says. “We’re acquiring land. We do our own development and community planning. We end up a little more heavily invested in land so we aren’t buying lots as we need them from other developers.”
Coleman says he is wary of an economic recovery that “never felt that great,” as well the Valley’s reliance on out-of-state retirees buying homes.
“The Valley is a little different than other areas of the country where the entry-level market is strongest and improving,” he says. “Our high-end market is really strong. If you look at our average wage, which is in the mid-$40,000s, and the number of $800,000 homes sold, it doesn’t compute perfectly.”
That failure to compute is a sign of trouble for middle-class would-be home owners working in the Valley.
“One of the hurdles in the Boise/Treasure Valley market continues to be the rapid rise in home prices,” says Eric Allen, regional director for the Utah/Idaho market for Metrostudy, a Costa Mesa, Calif., housing-market information company. “Strong demand for move-up buyers, combined with rising land and construction costs, have placed more emphasis on higher priced homes, particularly in Ada County.”
Corey Barton, owner of CBH Homes, says he plans to ramp up production from 980 homes in 2015 to 1,200 this year. CBH targets buyers looking to buy for less than the area median in each market, relying on sales volumes to generate profit. The company owns at least 2,000 lots, Barton says.
Barton says he thinks CBH will one day return to the production level of 2005, when it built more than 1,700 homes and hoped to top 2,000.
He says he’s not concerned about getting caught with too many homes in a bubble burst, in part because inventories are at safe levels. Builders are mindful now that economic indicators, including job creation, low interest rates and the migration of upper-middle-class residents to the Valley, support the increase in construction. They are more conservative than they were in the prerecession boom, which turned to bust almost 10 years ago.
“We will probably never experience a bubble or a boom like that again in my lifetime,” Barton says.
CBH takes a more aggressive tack than Coleman Homes, typically preselling only about a third of its homes. In 2015, Barton says the mix of presales rose to about half, because more customers wanted to choose floor plans, amenities and paint colors than in years past. But Barton hopes to return to a spec-heavy plan, because he sees more reward there than risks.
“If you have more homes out there, you’ll probably sell more,” Barton says. “We might be a little more active out there than somebody else.”
Even builders with plenty of lots and workers cannot increase production rapidly when the market heats up. Homes take six months to a year to build, meaning builders like Coleman and CBH laid the groundwork for this year’s growth in 2015.
Treasure Valley employment in natural resources, mining and construction — which is mostly construction — peaked during the building boom at 26,000 in June 2006. Employment bottomed at 11,000 in January 2011 and had grown to 18,800 by February.
And builders face a problem that has lingered since the Great Recession: a subcontractor shortage.
Coleman Homes employs 60 workers, but most of the skilled workers on Coleman job sites — plumbers, electricians, carpenters — work for nearly 100 subcontractors Coleman says he relies on.
Coleman says construction usually begins on his sites after two months of ironing out paperwork on presold homes. While labor shortages persist, fewer projects wait on subcontractors now than in years past, he says.
“Last year, there were certain companies experiencing delays of six to eight months to get a house going,” Coleman said. “We had delays up to a month or two.”
CBH Homes, which works with more than 130 subcontractors, is large enough that increasing building affects the administrative side of the business, Barton says. The company has 77 employees, as well as CBH offshoots specializing in flooring, HVAC and truss work, bringing the total to 144.
“When we do a lot more, we need more secretaries, more supers, more of all these different positions,” Barton says.
Metrostudy’s Allen says local housing-market fundamentals are healthy, so the Treasure Valley market should remain strong through the year.
Barton says a gradual evolution in the housing market continues.
“For us, the market and its challenges are pretty close to the same as they were last year at this time,” he says. “We are productively working through similar challenges with subcontractors, the labor force, and rising construction costs and pricing.
“We are seeing what we would expect, normal ups and downs in the market conditions, pricing and inventory. Right now it’s spring and the demand is high, and inventory is low. Because that supply is low, we’re not in an unhealthy situation. The housing prices haven’t skyrocketed up. We’re at a very good point for sellers. If you’re trying to buy, it’s tricky.”
Zach Kyle: 208-377-6464 , @IDS_ZachKyle. This story appears in the April 20-May 17, 2016, edition of the Idaho Statesman’s Business Insider magazine as part of a special section on residential real estate.