2006 07 01 Archive

New construction firmer in the region

By Sharon Stangenes
Tribune staff reporter
Published July 20, 2006

Chicago economist Paul Kasriel says housing is in a recession, but home builder Joe Swiderski doesn’t see it.

“Housing is a little slower than before, with interest rates going up,” said Swiderski, owner of Joseph Developers of far southwest suburban Morris.

“Activity is a little less, but nothing drastic. It’s still hard to get my trades workers. I have to schedule two or three weeks ahead on my carpenters,” said Swiderski, who builds about a half-dozen homes a year.

Those conflicting views illustrate the contradictions in the June housing start numbers released Wednesday by the Commerce Department.

Starts nationwide dropped 5.3 percent to a seasonally adjusted annual rate of 1.85 million units. Building permits, considered a sign of future construction, fell for a fifth straight month.

But the Midwest led the nation with a 3 percent gain in new construction. Regionally, requests for building permits eased 1.6 percent from the previous month, while they were down 4.3 percent for the nation as a whole.

“Even though housing is facing higher interest rates than in recent years, robust employment figures supported by relatively low long-term interest rates will continue to put people in homes,” said Bob Walters, chief economist for Quicken Loans.

However, Kasriel, director of economic research at Northern Trust Co., called the June numbers “pretty weak.”

“Nationally, we are seeing a definite slowdown,” he said. “Housing is in a recession. It’s not that the whole economy is in a recession, but housing is in a recession.”

“The Midwest has seen relatively less speculation” than other parts of the country, said Kasriel, adding that the region “is relatively less overvalued than the West, particularly California, and the South, such as Florida.”

June housing starts were down 11.5 percent in the Northeast, 4 percent in the South and 10.2 percent in the West.

In year-to-year comparisons, starts declined 9.6 percent in the Midwest from a year earlier, but that was less dramatic than the 11 percent drop nationwide.

“There is an excess supply of housing, both existing and new,” said Kasriel. “That’s why starts and permits are going down.”

He said builders are growing cautious about starting new developments, although they will continue with projects under way.

Rising interest rates are affecting construction activity, said economist Ryan Reed, of National City Corp. in Cleveland, noting that one of the goals of the Federal Reserve has been to cool down the hot housing sector. The central bank has boosted short-term rates 17 times in the last two years.

Surveys of single-family builders “have been showing a steady decline in confidence since the middle of last year, and builders are acting accordingly,” said David Pressly, president of the National Association of Home Builders.Others were more optimistic.

“Our starts are right where we expected them to be,” said John Carroll, president of Streamwood-based Kirk Homes, which is opening several developments this year.

“Last week we sold eight homes as a company. That’s very good for July,” he said.

The growing inventory of houses on the market is “a short-term concern,” Carroll added.

Mark Malouf, chief operating officer of Oak Brook-based Montalbano Homes, which operates in Illinois and Arizona, said his company plans to open “more communities this year than any year.”

The higher interest rates “impact the bottom 10 to 15 percent of any market,” said Malouf, but a mortgage rate of 6 percent “is still pretty darn good and people realize that.”

Sales volume is down more for higher-priced homes than those sold to first-time and first move-up buyers, he said. “Buyers for higher-priced homes are asking, `can I sell my existing home and how do I feel about my job?'”