Home construction starts plunged 47.6 percent in Hamilton County in the first quarter of the year and were the lowest in more than a decade, according to data from a real estate research company.

Builders said they are selling off excess homes in their inventories and are nearly ready to build more.

From January through March, builders obtained 241 residential building permits, compared to 460 permits in the first quarter of 2007.

“People knew the markets were off, but I don’t think people realized the depth that it was across the region,” said Dale Akins, president of The Market Edge Inc., which tracks construction in portions of five states. “Every market was off about 50 percent.”

Knoxville-based Market Edge is an information reporting service for building material suppliers, subcontractors and financial institutions that support the residential and commercial construction industry.

National data shows a first-quarter 2008 decrease of 40 percent for Chattanooga, which could result from a slightly different reporting process and coverage area, said Elliot F. Eisenberg, a senior economist for the National Association of Home Builders.

Fewer permits means builders are selling excess inventory before starting new homes, said local developer and builder Jay Bell. His home starts are down, close to what The Market Edge is showing, but he is about to start building more homes this quarter, he said.

Tim Bond, another local builder, said he is coping with the slowdown by reducing the number of homes he has under construction. Normally he has 10 homes in various stages of construction, but now he has half that.

“Everybody else has done the same,” Mr. Bond said. “There’s no sense in adding to an already flooded market of houses.”

Mr. Bell said his permanent staffing is down some, but most of his construction work is done through subcontractors, who find other jobs when the home building market slows but return when construction picks up.

“You can’t manufacture work for them,” Mr. Bell said. “When building slows down, people employed in the building industry suffer.”

The market should equalize this year, he said.

Tim McClure, president of the Home Builders Association of Southern Tennessee, said he also is starting to sell his homes. He sold one about a week ago in Barrington Pointe subdivision in Soddy-Daisy, he said.

Some builders are constructing smaller houses with fewer luxury amenities to keep prices down, Dr. Eisenberg said. Buyers are expecting bargain prices and incentives, which slows down sales and deflates prices, he said.

Mr. Bell said most of his houses are starter homes, in the $160,000 and $170,000 range, and are still selling well.

Chattanooga hasn’t been hit as hard as other areas such as California or Florida, Dr. Eisenberg said, but the national credit crisis has hurt the Chattanooga market. Subprime buyers, with more than one blemish on their credit, and buyers with only one blemish often qualified for loans two years ago, he said, but now banks have tightened their lending standards.

The home building market will improve once credit becomes more available, Dr. Eisenberg said.

Mr. Akins said the market will pick up once inventory matches demand, meaning builders will construct more homes.

“It’s like surgery,” he said. “It’s painful and it cuts deep, but it’s what’s needed to make us feel better in the long run.”

Comments