News

October 26, 2006
St. Louis Business Journal by BRIAN CASSIDY

Home builders not worried about waning construction

Home builder Richards Bruno isn't surprised that single-family permits are down.

Construction of single-family homes was down more than 20 percent during the first eight months of the year in the St. Louis area, but local builders don't believe the roof is crashing in on them.

Through August, single-family home permits were down 21 percent from the beginning of 2006 in St. Louis, St. Charles, Jefferson, Franklin, Lincoln and Warren counties and the city of St. Louis, according to the Home Builders Association of Greater St. Louis & Eastern Missouri.

But with interest rates remaining low and anecdotal evidence that consumer confidence is improving, local contractors have reason to be optimistic that the decline is only a market correction after recent highs, said Pat Sullivan, executive vice president of the builders association.

Richards Bruno, president of Bruno Homes Inc. in Clayton, agreed. "It doesn't surprise me that we're down," he said.

He compared the past few years of record construction to being on a rocket ship. "Hopefully the rocket ship is just refueling. From our standpoint, we're past the worst," Bruno said.

He admitted that interest in buying homes was down for most of the summer, and the numbers reported by the builders association supports that assertion. Single-family home permits were down 39 percent in August of this year compared with the same period last year.

But as the summer ended, oil prices declined considerably, which helped consumers feel better about buying a new home, Bruno said. The declining oil prices also helped bring down the cost of building materials, which were already decreasing because of lower demand caused by the construction slowdown, Sullivan said.

Builders have expressed confidence recently that buyers are returning to the market, Sullivan said. These builders say that during the summer, many home showings were filled with people who commented on how the homes were decorated but showed little interest in buying them. More recently, people were asking about pricing, Sullivan said -- an indicator that people are getting serious about buying again.

Like Bruno, Jim Brennan, president of McKelvey Homes in Chesterfield, pointed to a recent study by Moody's that helped him feel more upbeat about the area's housing future. The report contained bad news for homeowners in California, Arizona, Nevada and the southwest coast of Florida, where prices are expected to drop by double-digit percentages. But St. Louis was not on the list of areas expected to be hit hard by a residential property value decline.

The real estate speculation and price run-up seen in the areas of the country mentioned in the Moody's report never occurred here, which is why Brennan said the mess that can be caused by a bubble bursting won't affect homeowners and home builders here.

In fact, the St. Louis area remains a good place for people looking to buy or build a home, as interest rates continue to be as low as 6.5 percent, he said.

"We're seeing people relocating into the area from (markets such as) Seattle and California," Brennan said. "They're getting a heck of a lot more house for their dollars here."

It will likely be at least another year before Sullivan, Bruno and Brennan will learn whether their optimism was prophetic. If home builders continue to see a slide in home construction this year and then see another drop of 20 percent or so in 2007, it may be time to be more concerned, Sullivan said.

But he said that at this point, the unknown is when the slowdown will end.

"The question is, Is it three, six, 12 months?" he said. "We do see the light at the end of the tunnel."