While there’s some good news for homebuilders at the start of 2011, Wisconsin Builders Association (WBA) Executive Vice President Jerry Deschane says it’s not jump-up-and-down good news. That being said, he says several WBA 
members have told  him that they’ve been surprisingly 
busy.


At the Home Building & Remodeling Expo in Milwaukee, the Metropolitan Builders Association (MBA) reports attendance at the 22nd annual expo was up approximately 10 percent, with more than 5,000 attendees.

As an exhibitor at the January event, Ed Miller, president of E. Miller & Associates Inc., found expo attendees immediately wanted to set up appointments.

“That’s unusual,” says Miller, who also is MBA’s president. “It’s a sign that things are picking up.”

On January 26, the National Association of Home Builders (NAHB) quoted figures from the U.S. Commerce Department saying sales of newly built, single-family houses rose 17.5 percent to a seasonally adjusted annual rate of 329,000 units in December. NAHB said the big gain was a welcome boost at the end of a year that had the lowest total number of new-home sales on record (321,000) since the government began tracking them in 1963.

NAHB also reported permit issuance for construction of new homes and apartments rose 16.7 percent in December 2010 to a rate of 635,000 units, the strongest pace since March 2010.

Homebuilders across the state also say things seem to be looking up. This year, Midwest Homes President Brian McKee has seen housing starting to pick up, and states the company is looking at rehiring.

In December and January, he says the number of people going through Midwest Homes’ models was up dramatically.

“We have more potential contracts on our books now than we did this time last year, probably three times as many,” he says. “I’m cautiously optimistic. Usually this is the slowest time of year.”

Acker Builders Inc. of Waunakee notes it is also seeing more people interested in building a new home than last year. By the end of 2011, the company expects business to be up 20 percent. That being said, the types of homes people are seeking to build have changed. “We’ve seen more interest in homes with less square footage, and less overall costs,” says Michelle Acker, office manager at the family business started by her father and grandfather more than 40 years ago. “Land prices and construction prices also are down.”

If first quarter trends bear out, 2011 should be a better year for Wisconsin’s homebuilders. Traditionally, after looking at the first quarter, Dominic Collar, a partner at MTD Marketing Services, explains he has a good idea of how many houses will be built that year.

“Wisconsin housing starts are pretty consistent — there are patterns,” he explains.

Last year was a statistical anomaly. The first and second quarters of 2010 proved to be the best, which typically is not the case. Starting in July 2010, homebuilders saw six months of continual decline over the previous year. Many of the markets that MTD Marketing Services LLC tracks built fewer homes in 2010 than 2009, though some built only slightly fewer. Dane County built 609 homes in 2010, which is seven more homes than 2009. The greater Milwaukee area, with 3 percent increase, saw the most growth and built 859 homes.

Looking at the last two years, Collar says, “I think we have hit bottom for the housing starts.”

THE BOTTOM
For homebuilders, current trends provide some welcome signs of economic recovery; 2010 was another tough year for the industry. MTD Marketing Services tracks data that shows just how tough the year was in Wisconsin. The privately owned company tracks about 80 percent of the state and most major markets.

Collar explains where Wisconsin stands today by first describing the housing market at its highpoint. Depending on the geographic area of the state, the housing market peaked in 2003 to 2005. After about five years of decline, housing starts at the end of 2010 were down 60 to 80 percent throughout the state, Collar says. MTD Marketing Services data gives examples: at its peak in 2004, the greater Milwaukee area had 3,007 new home starts. Last year, the area had 859 new starts. The Fox Cities had 1,038 new home starts in 2004. That number dropped
to 371 in 2010.

Fewer new starts have meant fewer jobs.

A study done by NAHB for the Fox Cities area in 2007 concludes that for every 100 new home starts, 323 local jobs are needed, and each year after construction, those homes sustain 81 jobs.

Christine Shaefer, Valley Home Builders Association executive vice president, explains, “Our area’s decrease of more than 600 housing starts in six years means we’ve lost more than 2,000 local jobs.”

Statewide, MTD Marketing Services has seen fewer builders apply for permits. Looking at Dane County in 2010, there were 109 builders who applied for at least one permit for a single family home. In 2005, there were 575.

“I don’t know if people understand how dramatic the downturn in the housing industry has been in Wisconsin and how much it’s affected people’s lives,” Collar says.

A lot of builders who previously built five to 10 houses a year haven’t built a house in two years, he says.

As someone who has been monitoring the home building industry for more than 20 years, Collar’s seen entrepreneurs, who previously were able to control — through hard work and diligence — where they were going with their companies, struggle desperately during the Great Recession.
Most are now doing remodeling such as basements, window replacement and household repairs, he says.

“They’re doing anything they can to continue as a business until the housing industry turns around,” he explains.

While there is business out there, Collar says there’s not a lot.

Relatively speaking, he says, “the housing industry is not good.”

And some businesses and companies, mostly smaller builders, have been weeded out of the market.

PERSEVERING IN SPITE OF IT ALL
The major builders have not gone away — Collar says 90 percent are still building, but they’re not building as many houses as before.

While MTD Marketing Services does not release data on specific builders to the media, Collar says a few builders have actually done extremely well despite the economic downturn and have not seen their numbers drop.

Those really hurt by the economy were builders that previously built 10 to 20 houses a year, he says. Looking at Dane County in 2010, MTD Marketing Services data shows 66 builders built one house, 35 built two to five houses, and only a couple built six to 10 houses.

Throughout the recession, Shaefer says builders and subcontractors worked to adapt to consumers putting home purchases on hold due to the unavailability of credit and other challenges. She gives examples showing how they adapted: “Many reduced the sizes of their staffs and looked for ways to increase efficiencies. Some reduced employees’ hours. Companies also expanded the geographic area to which they would travel to do jobs and diversified the types of jobs they would undertake to keep their employees working.”

Miller adds builders also partnered with lenders and developed relationships, and they aggressively marketed homes.

Acker Builders had been building about 35 homes a year, and was down to 20 at the start of 2011.

To cope with the recession’s harsh realities, Acker Builders cut its overhead by 30 percent. Acker Builders and its subcontractors also cut their profits.

“We needed to do this to stay competitive with existing home prices,” says Acker.

Acker Builders also cut inventory.

“We cut back on our model homes and the number of lots we buy,” Acker explains.

Midwest Homes also is building fewer homes than it did in the past. With fewer homes to build, Midwest Homes has done more basement finishes, additions and remodeling.

“We’ve always done those things, but the last couple of years we’ve done more to keep guys as busy as we can,” McKee says. “We have had to lay some guys off.”

Midwest Homes like Acker Builders had seen tough times before. McKee’s father, William McKee, started Midwest Homes in 1969.

“These cycles come and go,” McKee says. “Some are worse than others. This is probably one of the worst.”

Having experienced tough economic times before, McKee says, Midwest Homes learned to diversify and plan for the downturns. “We didn’t overextend in the good times. We didn’t have a lot of spec inventory when the market started to crash.”

Midwest Homes also has a sister company, McKee Associates, which does commercial work. Typically when housing is slow, McKee says the commercial business is a little busier. While housing has been down, McKee Associates has seen an increase in business from fast food restaurants and dentist offices.

A CONSERVATIVE STATE
Even with these types of struggles, Wisconsin as a whole has fared relatively well during the Great Recession. WBA’s Deschane explains Wisconsin is more conservative economically.

“We don’t crash as hard as Arizona or Florida or other states,” he says, “nor do we recover as quickly. There was rapid price appreciation in homes here, but nothing near what you saw in other states. Also, you don’t see massive speculative building that you saw in other parts of the country.”

Miller says the new year was starting as 2010 had ended, with increases in permits, and predicts 
15 percent growth in new home starts could be possible in the greater Milwaukee area.

The real caveat is foreclosures and existing home inventory, he says. These numbers need to stabilize or decline for that growth to occur, he says, and stabilization and growth in the Wisconsin job market will assist in reducing the existing home inventory.

A significant problem builders face is they have a ready buyer, but the property appraisal won’t justify the mortgage.

McKee says appraisers are looking at what short sales and foreclosures are selling for rather than what an actual house is selling for to an existing client. He says short sales and foreclosures should be price adjusted up to what the market is.

While Deschane hopes that’s getting better, it’s something WBA is worried about and working to change.

Everything that can be done to make credit, make money more available to buyers, and make the appraisal process run more smoothly is going to help, he says.

Nationwide, NAHB is projecting about 
50 percent growth in new home starts by the end of 2012, which Miller explains is about 50 percent of the 2005 high.

If that holds true, he says, “It should be a pretty exciting time for us.”

By Rebecca Kanable

Rebecca Kanable is a freelance writer from Milton, Wisconsin.

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