In 2004, the U.S. economy registered a growth rate of 4.4 percent, the best showing in five years, according to the Commerce Department. And the housing industry was a key economic stimulant. In Fayette County, home builders were celebrating their best year ever — 2,384 single family home building permits issued.
No one could have foreseen what would happen just five years later — a crushing national recession and the collapse of the housing industry.
As 2012 winds down, local home building experts believe the worst is over and conditions are gradually improving for most of them.
“There are signs of improvements in several places across the country, which is good to see,” said Todd Johnson, executive vice president, Home Builders Association of Lexington.
Johnson examines home-building data for the Southeast region because it most resembles our area.
“The numbers are not back to what they were, certainly, but the trend is positive,” he said.
As of the end of September, there were 548 single-family home-building permits pulled in Fayette County. That nine-month figure exceeds the total for all of 2011 — 516.
When a builder takes out a permit, he or she usually will start construction within days. Permits generally equal the number of homes under construction or scheduled to be built.
Are there new subdivisions starting to sprout around Fayette County? Not really. Builders of several existing subdivisions have opened new phases or are doing in-fill home construction in those subdivisions. Few spec (speculation) houses are being built, and the inventory of spec homes built just before the housing drop is starting to shrink.
Johnson said builders have been on hold the past few years, waiting for economic conditions to improve. It’s the same for home shoppers.
“A lot of people have sat on the fence and now have moved forward and bought that new home,” said Johnson. “They may have more of a comfort level than they had. There may be signs of improvement in their job situation; maybe they were worried about that.”
Low interest rates have also played a role in spurring customers, although the lending process is more challenging now, even for those with good credit. Still, the rates are as good as they have ever been.
Starter homes can take anywhere from 90 to 120 days to complete. Larger homes with more features will extend the construction period.
Johnson said Kentucky didn’t have the sub-prime lending problems that other states such as California, Florida, Arizona and Nevada did.
“You can look at the historic trend of foreclosures in Kentucky, and we have been near the bottom of the national list,” he said.
One federal government ranking showed Kentucky listed as 40th in the United States in foreclosures.
“Our market has been fortunate in that we didn’t see the magnitude of problems we saw across the country,” added Johnson.
In the early 2000s, some states, such as California and Nevada, had extremely high rates of home-building permits issued. The market eventually couldn’t support that.
In Fayette County, the 10-year average during the mid-2000s was about 2,100 permits per year. Those may seem like the glory days compared to the present.
“I’d like to be back to our 10-year average, but I don’t think that will happen,” Johnson said. “We are hoping that the positive trend continues. We are pleased to see it, but we are not out of the woods yet. The signs are better now than they were at this time last year.”
It may take several more years to reach that level again.
“Man, there is no way to predict that. If I could, I’d be sitting on an island somewhere,” Johnson said with a laugh.
The home-building rebound doesn’t just involve starter homes or mid-priced homes. At least one high-end builder is seeing healthy business again.
Mike Kerwin is the owner of Kerwin Homes, a custom-home builder, as well as president of the Home Builders Association of Lexington.
“It’s a general groundswell of people feeling things are getting better. I can’t speak for everyone, but my business is up dramatically in the last year and a half,” remarked Kerwin.
The number of Kerwin Homes building permits climbed between 30 and 40 percent over 2011 and sales of new, custom homes are up more than 60 percent.
“It may be that people just got tired of hearing nothing but bad news,” Kerwin said.
As was the case for most builders, 2009 was Kerwin’s worst year.
He said the sale of certain types of new homes is a good barometer for the entire market. That means someone who sells his or her home for $200,000 may be looking for a home for $250,000.
“It’s a domino effect. If Ball Homes [starter to medium-price builder] is busy, I’m going to be busy soon after,” said Kerwin.
Home construction fuels the sale of many other products — lumber, brick, roofing, hardwood flooring, appliances, furniture and much more.
“It’s cars and houses that drive this country,” Kerwin said. “They are two dynamics that if one suffers, the country suffers.”