By Report

News that home prices in major U.S. cities registered their first monthly gain in nearly three months has most economists bouncing off their seats to shout about it.

But an Idaho market study group is suggesting that while the Treasure Valley is seeing gains; the direction remains unclear.

"The housing market appears to be bouncing along a 'sloppy bottom.' Month-to-month volatility makes it difficult to see a clear direction for the industry," said Mike Inselmann, president of Metrostudy, a national housing market research firm.

New-home sales trends are similar to those of existing homes, with the second quarter showing minor improvement. However, reducing inventory is the primary focus of the building industry in all markets across the country.

Trey Langford, founder of BuildIdaho.com, said last month that he's seeing increased optimism among homebuilders.

"The numbers are fewer but the people that are contacting them are people that are motivated to buy or build new homes. They're not just trying to figure out what the price of a new home is; they're actually in the market."

Builders continue to negotiate a minefield of countervailing factors. Tax credits, low interest rates and attractive pricing encourage buyers to act, but the economy and fear of job loss and home price declines give them reason to sit on the sidelines.

Inselmann said as builders focus on inventory reduction, many markets will be in a much more balanced state by the end of the year, and may face a much improved outlook.

Wells Fargo economist Kelly Matthews said there should be a view that the building sector has seen a slowing in the construction free fall.

"I've been trying to make the case through much of this spring and early summer that the consumer sector, including the housing sector has stopped falling," he said. "I don't know if there's a difference between 'stopped falling' or 'stabilized,' but I've been trying to make the case that maybe ... in housing - construction, sales, foreclosure, falling prices - many, many aspects, if you take the whole picture together, maybe we have stopped falling."

Matthews said looking at permits alone paints a dire picture in the construction numbers.

Idaho cities and counties issued building permits for $224 million of projects in June 2009. That's up 95 percent from May's construction total, according to numbers from Wells Fargo's monthly Idaho Construction Report.

The largest contributor to the jump is an $87 million permit in Pocatello for the $150 million expansion to the Portneuf Medical Center, the largest construction project in Bannock County history.

Including that project, non-residential construction climbed to $169 million, up 180 percent from a year ago.

Residential construction also climbed in June to its highest level since August 2008, with 345 new single-family homes permitted. That's up 15 percent from May 2009, but still down 19 percent from June 2008.

Construction of apartment complexes and other multi-family units is down 94 percent from last year, while mobile home construction increased 62 percent.

Matthews said, "It becomes very clear from the sales point of view from Canyon and Ada counties, that you could make the case that maybe it's not getting worse, but from the construction point of view the numbers of permits are still really, really bleak."

Eric Allen, director of Metrostudy's Utah/Idaho region, said in a release that new-home production in the Treasure Valley market continued to decline in the second quarter of 2009 as builders focus on reducing finished inventory.

The number of new-home closings remained greater than the number of starts, a trend that has led to reduced inventory levels.

During the second quarter of 2009, the market slowed to 1,457 total annual starts (attached and detached), a 48 percent decline from the second quarter of 2008. There were only 373 new homes started in the second quarter, 51 percent fewer than in the second quarter of 2008. The annual rate of detached-home starts during the 12 months ending in June 2009 was 1,300 units, a 46 percent decline compared to the previous year's pace of 2,413.

"Builders have recognized the need to deliver more affordable homes to meet the needs of entry-level homebuyers emerging in the market today," Allen stated.

In the second quarter of 2008, housing starts priced below $200,000 represented 39 percent of the market; the market share increased to 64 percent in the second quarter of this year.

As new-home production has declined, vacant developed lot inventory has increased at a very rapid pace in the Treasure Valley market and remains high, he stated.

In June 2009, there were 13,903 vacant developed lots, a 115- month supply at the current rate of absorption.

Historically, a balanced supply of vacant developed lots is 18 to 24 months, according to Allen. With so few housing starts in the last 12 months, the months of supply figures are skewed higher when compared to a normalized market with a more steady absorption pace, he stated.

Allen said the dynamics of the new-home market are intertwined with that of the resale market, and the resale market is receiving the vast majority of consumers' attention. As of June, year-to-date sales for Ada and Canyon counties through the local IMLS (Intermountain Multiple Listing Service) accounted for 2,707 resale homes, a 1 percent increase compared to the previous year's pace. Home resales have increased each month since the first of the year and the sales pace of 670 homes in June 2009 outpaced June 2008 by 133 homes. The most recent volume appears to be driven primarily by bank-owned (REO and foreclosure) homes, especially at the lower end of the price scale.

Attractive pricing, first-time homebuyer incentives and record- low mortgage rates are fueling a strong rally for lower-priced homes in the resale market. According to the IMLS, the average price for a resale home in Ada County is $199,444, which is 20 percent less than in June 2008. The average price in Canyon County is $128,133, a 21 percent decrease compared to last year at this time.

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Robb Hicken and Dani Grigg contributed to this article.

Credit: IBR Staff Report

(Copyright 2009 Dolan Media Newswires)

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