Anyone who has anything to do with putting up a house – electricians, plumbers, flooring contractors, painters – have all reacted to slower demand by cutting capacity. A Q&A with Gray Stettinius, president of the Home Building Association of Richmond.
Perhaps no industry in Richmond has slowed down as much as homebuilding. Without more sales, there is just too much on the market to start fresh construction. And so builders have practically quit adding new homes.
In part that’s because there seems to be a battle for hearts and minds going on between home sellers and homebuilders. Buyers read newspapers and magazines and want to bargain down prices, or wait until they fall more, afraid of catching a “falling knife.” People in the selling side constantly say, “Richmond is doing great, and this is a great time to buy.”
The truth probably lies somewhere in between. I sat down with the Gray Stettinius, the president of the Home Building Association of Richmond and owner of Tuckahoe Creek Construction to learn about these challenging times. Below is an edited version of our conversation:
RBS: How much product is out the on the market now?
GS: The last I heard, the market has about an 8.5 month supply. I’ve always heard that a reasonably healthy vibrant market is in the six months supply range, so we’re not too far off that.
Last fall the statistic was 12 or 14 months. Builders have quit adding speculative product on the market and they’re letting the market drive sales.
RBS: That means a major pull-back in new construction. What are you seeing?
GS: Just about everybody has trimmed staff. Some around 40% or 50%. Anyone who has anything to do with putting up a house – electricians, plumbers, flooring contractors, painters – have all reacted to slower demand by cutting capacity. That’s bad if there are good people who’ve found themselves without work. But it’s good in the sense that there isn’t’ a massive inventory on hand. And so far, I haven’t seen any bankruptcies and none of the people I work with have gone out of business.
RBS: Several major employers in the region have slashed or relocated jobs (state government, Wachovia Securities….). Will that delay a recovery in homebuilding?
GS: There’s a linear relationship between net new jobs and new construction. If there’s a new job, there’s a new family that’s coming to fill that job, and that family has got to live somewhere. But last I heard, net new jobs are darn close to flat, so the growth is just slower.
RBS: As president of the Home Building Association of Richmond, what are the most pressing issues on your mind?
GS: One is a seeming long-running battle with Chesterfield about what our role is there. Our interests are very much aligned with those of the Chesterfield residents and the government. But there is a fairly vocal contingent that feels home building and growth is what is creating the problems. But you’ve got to have some growth to fund the services that the residents demand and expect. Balanced, smart growth is the answer, not no growth. It’s no coincidence that the county coffers are suffering now that construction has slowed.
RBS: We’ve started hearing from contractors who are having more trouble getting paid in a timely manner. Are contracts and subs taking longer to pay?
I’m hearing some situations of subcontractors being asked by a builder to take a little longer. It’s a very cooperative process, from what I’ve heard, where the builder who normally pays every 30 days calls up and asks if he can pay in 60 days. I have not heard of any subcontractors getting stuck yet. And don’t know a single builder who’s gone out of business locally yet.
RBS: Are high gas prices starting to change consumer’s taste for new homes?
GS: We’re starting to see some traditional neighborhood development, or new urbanism, hit Richmond. Roseland just got zoning last week. And there’s Tree Hill. These incorporate traditional neighborhood designs and philosophy with a mix of housing types as well as retail and commercial. There are even live work arrangements with retail or commercial on the first floor and residential units above it. This type of development is designed to be very walkable.
RBS: It seems that with costs rising so much for the land, materials and the building process, you’d think houses would shrink in size or utilize cheaper materials? Is that happening?
GS: That’s part of the appeal of traditional neighborhood design. I think some of those projects offer studio style units less than 1,000 sf. It’s also my understanding that some of the production builders are trying to react to the market by offering the same product and quality, but in smaller packages.
RBS: It seems that during the boom times, everyone was a flipper or budding interior designer. Are people letting go some of their expensive tastes, at least in the mass market?
GS: People have gotten fairly particular about what they’re looking for across all price points. Everyone still has to have granite. People started getting into high end appliances like Wolf and Sub Zero even at lower price points. That might be changing now. It’s amazing to see things at various price points. The market is being a little more practical now. That’s only anecdotal though.
RBS: How is morale?
GS: It’s been better. Part of the problem is that the builders as a whole feel like there’s a good story out there but can’t quite figure out why people aren’t reacting more positively to it. Interest rates are still pretty low and because of the softening sales, builders and developers are willing to work with people and put incentives on the table. Builders are tired of operating at a lower level and want to start building again.
RBS: So is your challenge a marketing one?
GS: I know you’re in the media, and hate hearing people blame the media for everything – I had the flu this morning, blame the media or my shoes are worn out, damn media. And if I was in Florida, I couldn’t blame the media. They just have too much inventory and there is blood in the streets; banks, businesses, everybody. I know that’s national news.
But Richmond, while slower, just isn’t Florida or California. And I wonder whether or not reporting on national news at the local level impacts local activity. I can’t tell you that it does, but I can certainly tell you that there’s a concern that it does.
RBS: Isn’t this in part because people started to view their homes as investments assuming they’d go up like a hot stock. But any investment can go down. And now buyers don’t want to buy too high so they’re waiting. That’s what I’m hearing. And sellers are so convinced their homes are worth what they think they are, they’re not willing to lower the price. So the market is jammed up.
GS: Richmond values are not falling because for the most part, people don’t need to sell. And builders don’t have a ton of inventory out there, so there isn’t a horrible imbalance.
I’ll tell you what’s going to happen: when this turns, it’s going to turn very quickly. There isn’t a lot in the pipeline now, and once that 8.5 months of supply falls to 5, it will flip back to a sellers market very quickly with no product.