Residential Growth: If Covid can’t slow the Tri-City housing market, nothing can
A pandemic, choking smoke and a polarizing national election did little to dampen demand for new and existing homes in the Tri-Cities as the calendar flipped toward the final quarter of 2020.
More homes sold for higher prices. Unemployment increased, driven up in part because more people were seeking work.
New home construction fell, but only slightly, and largely because Gov. Jay Inslee issued a Stay Home, Stay Healthy order in March to curb the spread of contagion. The order temporarily halted most residential construction, leading homebuilders to apply for fewer permits.
If a pandemic can’t slow the Tri-City market, nothing can, said Brett Lott, owner of Brett Lott Construction, which has built custom and semi-custom homes in the Tri-Cities for 30 years.
It’s true, said David Retter, president of Retter & Co. Sotheby’s International Realty.
By mid-September, the inventory of homes for sale dropped to 375, a third the number needed for balance, from twice that a year ago, according to the Tri-City Association of Realtors.
The record low level was 350 in the early 1990s, when the population was much less than the current 300,000-plus and Hanford was hiring for its then-new cleanup mission.
“We don’t have a lot of inventory,” Retter said. “It’s going to be a very interesting winter as we navigate through these Covid times.”
Still, he agreed with Lott.
“Covid has not stopped or even put a dent in the real estate market in the Tri-Cities,” he said.
By the numbers
Tri-City permitting agencies approved 1,021 single-family homes in the first eight months of 2020, an 8% drop from the same period in 2019 but comparable to activity levels for the two prior years.
The Realtors group reported 3,117 sales of both new and existing homes through August, 6% more than the 2,934 sold during the same period in 2019.
The agency said the median price rose 4.5% to $320,000 in August compared to a year prior. The average price rose 5% to $350,000 over the same period.
Prices tend to drop slightly in the Tri-Cities when the weather cools and the busy summer buying season ends.
Turning to townhomes
A tight inventory is one cause for concern. A shortage of buildable lots coupled with soaring lumber prices are two others.
The combination of cheap mortgages and surging need for housing drives demand for homes. The shortage of homes for sale translates to fast sales, rising prices and strong demand for new construction.
“I don’t see anything in the near term that is going to slow us down,” said Lott, whose company is completing the second phase of Terra Vista Heights in Kennewick’s Southridge neighborhood.
His next development site is Richland’s Badger South area, where Brett Lott Homes will build townhomes. He expects to begin foundation work in December.
The shift to townhomes answers a common question: Where is new construction for entry-level buyers?
Lott said it’s not possible to build an entry-level home when it costs $180,000 just to secure the land and pay taxes, permit fees and commissions to the agents who bring the buyers. The $180,000 excludes building materials and labor.
“We’re looking for ways like townhomes to mitigate that,” he said.
The as yet unnamed Badger South project will feature duplex-style townhomes with three bedrooms, two bathrooms and two-car garages. They will be individually owned, and the idea is to cater to price-sensitive buyers and people who want to downsize out of larger homes.
Tri-City builder Britt Creer builds across all price ranges through three companies. Urban Street Builders specializes in high-end custom homes. Ranchland Homes builds mid-level and semi-custom homes. Red Mountain Construction builds townhomes and rental-grade properties.
Creer said sales are strong across the range of prices. The biggest challenge is to find lots, particularly for custom homes in the $1 million-and-above range. There is interest, but buyers have a tough time finding a place to build.
“We end up not building all the ones we look at because buyers can’t find suitable lots,” he said.
In the mid-tier, he has enough orders to stay busy for eight months, with homes taking 40 days or less to sell.
His biggest shift is to townhomes. Priced around $320,000, his projects cater to first time homebuyers and people looking to downsize with smaller yards.
Pandemic fallout has been almost nonexistent. Creer said just one sale fell through because of the stay-home order. The unit was resold.
Lumber prices on the rise
The National Association of Home Builders raised the alarm about soaring lumber prices this summer. The Random Lengths Framing Lumber Composite Price rose to $900 per 1,000 board feet in late August, from $340 a year earlier, it said.
Lumber isn’t the most expensive component of building a home — that honor belongs to cement, an ingredient of concrete. Still, rising lumber prices added $16,000 to the average cost, it said.
NAHB asked Commerce Secretary Wilbur Ross to urge domestic producers to increase production to address shortages.
It sent a similar message to U.S. Trade Representative Robert Lighthizer asking him to work on trade disputes that raised the price of imported Canadian softwoods.
It also asked Laurence Kudlow, director of the National Economic Council and a top advisor to President Donald Trump, to use the “clout” of the White House to address both issues.
Rising lumber prices prompted Creer to stop pulling permits for new projects in early August. He had more than a dozen projects in construction mid-September but was waiting to launch new ones until lumber pricing settles. If it doesn’t, he will “adjust prices and go forward.”
Customers, particularly entry-level ones, can’t easily absorb the extra hit posed by rising costs, he said.
Lott, on the other hand, said the sensitivity to price spans all ranges of homebuilding. Customers routinely shop at the top of their price range, so unexpected increases can jeopardize plans.
His company still is building though he suspects the new prices are here to stay. He blames shortsightedness for the cost problem.
With Covid-19, mills shut down on the assumption everything was shutting down to avoid ending with an oversupply. But many states didn’t shut down and those, such as Washington, that did have restarted construction.
“They’re scrambling to catch up,” he said. He doesn’t expect supply to catch up with demand until building slows during the cold winter months.
Retter, of Sotheby’s, is watching lumber prices, but noted they are somewhat obscured by mortgage interest rates that are below 3%. Home-destroying hurricanes and fires will only drive up demand for lumber and other materials, causing prices to rise.
Buyers don’t have much room to maneuver in such a tight market, he said.
“At the end of the day, they can’t pause too long because someone will come behind them and buy the house. The market is what it is.”