Homebuilders optimistic about recovering real estate market | The ...

By Alex Gannon

For the first time in years, Lexington homebuilder Richard Hinnant feels optimistic about the local real estate market.

Hinnant, whose Lexington-based custom homebuilding company R.L. Hinnant Design and Construction was hit hard by the financial crisis of 2008, said the construction industry is beginning to rebound.

?During the worst part of the recession in 2009 through the end of 2012, there was virtually no new construction at all,? Hinnant said. ?Finally, we?re seeing some of that come back.?

The growth in new home construction Hinnant has observed is part of a nationwide real estate market recovery. According to the U.S. Census Bureau?s Starts and Building Permits Report, 780,000 new housing units were started in 2012, 28.1 percent more than the total number of projects began in 2011. The same report shows that 30.3 percent more building permits were issued in 2012 than 2011.

Although construction across the nation has increased, the local real estate market has been slow in returning. Lexington was particularly vulnerable to the real estate downturn caused by the financial crisis, says Scott Baker, an agent with J.F. Brown Real Estate Services.

Baker attributes the slow recovery to Lexington?s status as a retirement destination.

?When markets that feed retirees into this area are solid enough for those retirees to turn around and buy land and build homes, construction can grow,? said Baker. ?So there has been some lag time in our turnaround.?

According to the U.S. Census Bureau, the city of Lexington approved nine residential building permits between 2008 and 2011, compared with 12 in 2007 alone. For people like Hinnant, such a decline can be devastating for business.

?Because this area has a fairly small static population, builders around here run small operations and build on contract,? said Hinnant. ?When demand disappears, so do the contracts.?

Despite the long downturn in his business, Hinnant considers himself lucky. According to Hinnant, many builders in Lexington during the mid-2000s constructed homes on speculation. Speculative builders construct homes before finding a buyer, betting that someone will want the house once it has been completed.

?Everyone and their brother was jumping on the bandwagon building homes for speculation before the recession,? said Hinnant. ?When the economy hit the skids in 2008, they lost their shirts.?

For the builders who survived, the slow growth is encouraging.

The Housing Starts and Building Permits Report, which is compiled through surveys of homebuilders around the country, is a leading economic indicator. That means that the report is indicative of future economic performance. When housing starts and permits rise, the economy is likely to grow, but when they fall the economy is likely to follow suit.

?When consumers have enough money to build a house, that probably means they have enough money to buy more of other goods, and that?s a good thing for the economy,? said Scott Hoover, Associate Professor of Business Administration and Finance at Washington and Lee University.

Baker believes that Lexington will see this trend continue in the coming months.

?Many people prefer building new homes to existing homes,? he said. ?They are new, clean, the floor plans are conducive to modern needs, and maintenance expenditures are low in the short run. I think that if the economy keeps getting better, building a home will be much more realistic for buyers in the area.?

For Hinnant, real estate recovery in Lexington isn?t just good for his business. He believes it helps everyone in the community.

?The past eight years have been crazy,? he said. ?When people start building again, I think it signals that things might get a little easier for all of us.?

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Source: http://rockbridgereport.washingtonandlee.net/?p=7268

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