Posted Apr 12, 2010

From Lewes to Newark, carpenters and excavators have returned to subdivision sites this spring to throw up new homes, evidence that after many months of pain, Delaware's residential real estate market is moving forward again.

Sales of existing homes have been creeping back up for three months, and now new construction is starting to follow suit, cautiously, as builders measure a still-fragile market.

The rekindling of residential construction is good news for the more than 5,000 Delaware construction workers idled by the building nose-dive -- and for the overall Delaware economy, which counts housing as one of its most powerful job engines.

"To a certain degree, people are sick and tired of being sick and tired," said Matt Thompson, president of Thompson Homes in West Chester, Pa. "That's part of the spring fever."

The uptick will be supported for the rest of this month by mortgage rates that still are near historical lows, and sizable federal tax credits for first-time buyers and people looking to sell and move up or down with a new home.

Home prices also are inching back up, providing a breath of relief for homeowners across the state who have watched as home values fell and listing prices had to be cut again and again. Local real estate agents predict prices could rise by more than 3 percent in the next 12 months.

Katie Spizzirri hopes that optimism, mixed with a dose of reality, spreads.

Last year, Spizzirri and her family put their home in Middletown's Parkside neighborhood on the market to test the waters.

"We didn't get any interest. We had one showing," so it was taken off the market, she said. "We were still in that mind-set that it's still worth what it was in 2006. ... That was a scary time."

This year, she took another look and decided the time had come. Interest rates are low, neighborhood amenities are opening up. Chopping the price by $100,000, the family put it on the market for $449,000 -- just a bit over what they paid in 2006 -- and scheduled an open house for today.

She's much more hopeful this time -- about buying as well as selling.

"I can look at houses now and feel like I'm not paying for someone's misfortune" by purchasing an unrealistically priced home, she said.
Buyers 'out of the woodwork'

The signs of renewed growth are emerging across the state, demonstrated by sales of existing homes that rose markedly in January and February.

Existing home resales were up 14 percent from last January in New Castle County, and up 31 percent in Kent. Sales of all homes -- existing and new -- were up 34 percent in Sussex. The pace fell off a bit in February because of two big snowstorms.

"There are some good deals. Prices have adjusted," said Judy Dean, Long & Foster Realtor and president of the Sussex County Association of Realtors. "I'm optimistic, though, because I'm busy. Buyers are coming out of the woodwork. They're starting to want to see what's available."

Builders say there is a slow, but steady, rebound at new construction sites.

Thompson says he is seeing a sharp pickup in interest at his projects in New Castle and Sussex counties, both among vacation-home buyers and primary buyers.

"People are saying, 'I'm not losing my job, the world is not coming to an end.' They feel like they need to go ahead and live," he said.

Realtors and builders say the market today is dominated by price-conscious buyers. They are looking for realistic pricing -- such as what Spizzirri finally swallowed with her Middletown home.

"If you have a property that's priced well, there's lots of activity," Dean said. "The ones that are, they're moving the properties. The ones that aren't, they're not. They're just sitting."

The traffic through homes now on the market is driven, in part, by the ticking clock on federal tax credits. To qualify, buyers must sign a sale contract by April 30.

First-time homebuyers can get a credit of up to $8,000. The government also offered a tax credit of up to $6,500 to longtime residents who buy a new principal residence -- no credits for vacation homes.

Observers say the concern with proper pricing extends beyond the list price of a house, as consumers singed by the recession and stock market collapse have scaled down their expectations.

Many builders have been reconfiguring designs toward lower price points, with smaller homes more in vogue.

"There's certainly pressure to be at a lower point," said Paul Handler, vice president Handler Homes, which has seven projects under way in New Castle and Kent counties. "You can take advantage of great financing deals up to certain price points, income levels."

Builders say the excesses of past years -- oversize houses, lavish amenities -- have given way to more prudent ideals.

"The pendulum has come back to the middle," Thompson said. "People still want nice. It just doesn't have to be nice and big."
Help from the state

What's needed to sustain the gains, some insiders say, is more help like the first-time homebuyers tax credit, or some sense that jobs are starting to return.

Delaware got a welcome jolt of that energy last month when the state rolled out a $250 million program to provide more affordable mortgages for moderate- and low-income buyers. In recent months, the Markell administration has moved to reclaim some of the jobs lost by the closing of auto plants and the Valero refinery, recently sold to a firm committed to reopening the facility.

"That's giving the construction guys hope," Jennifer Casey, executive vice president of the Home Builders Association of Delaware, said of the state program. "If they're out there, they're digging in anticipation."

The signs of renewed builder interest in digging can be found in the county land-use offices.

Less-scientific observations also see some renewed vigor.

New Castle County's Land Use Department issued 26 building permits for single-family homes in March of 2006 -- a number that rose this March to 67. There were 5,800 phone calls to the department in March 2009 and that rose this year to 6,377. Compared with March 2009, 478 more people stopped by the offices on Reads Way near the airport.

"It's not nearly at the level it was years ago, but the trend line is not continually going down. It's the first time we've seen the trend line go up," said George Haggerty, the department's assistant general manager.

In Kent, 136 single-family dwelling permits were issued in the first quarter of this year, up from 82 in 2009.

In Sussex County, officials in the permit office say they are seeing more "spec" homes come across their desk -- meaning developers are willing to build without a firm buyer.

"The weather didn't cooperate at all this winter, and that's held a lot of builders up from getting started," said Eddy Parker, director of the county's Assessment Division. "We're seeing more activity at our permit counter in the past couple weeks and we're hoping with the weather breaking that'll be a trend and continue for a while."

The construction trades have a big stake in a building recovery. That industry lost the most jobs of any profession in Delaware last year -- 5,200 jobs, after peaking at 29,900 total in November 2005. Federal energy-efficiency subsidies also should help boost their fortunes this year, said George Sharpley, a senior economist with the Delaware Department of Labor.

A vibrant construction sector benefits the whole state. In terms of total wages paid, construction jobs accounted for $1.3 billion, or 6.9 percent of Delaware's total income, in 2006. By 2009, that was down to about 5 percent.

A study last year by the National Association of Home Builders looked at the economic impact of home building in the broad area around the Appoquinimink School District in southern New Castle County. The construction of 310 single-family homes brings a yearly benefit of $82.5 million in local income, $19.9 million in taxes and other revenue for local governments, and involves 1,015 local jobs, the study concluded.

Still, the major generator of construction jobs, Sharpley said, will come with a recovery in heavy, commercial construction -- not homes. And that may take some time to develop.

"I don't see us getting back to those peaks probably for another six to eight years," Sharpley said. "I think it's going be a more gradual process."
Not in the clear yet

Observers say there still are forces at work that could nip the recovery in the bud.

Some wonder whether potential buyers still will be out there when the federal tax credits expire. Others worry whether momentum can be sustained if interest rates rise.

Chris Schell, president of Sussex developer Schell Brothers, which has communities from Millsboro to Lewes, said people are no longer fearful of buying homes, but many are still barred from purchasing because of stricter lending requirements put in place by banks after the financial collapse.

Others want to buy but still can't sell their current homes.

"We essentially have the equivalent of real estate gridlock," Schell said. "The engine needs to restart in order for people to restart -- they need to sell their existing homes, and the only way to do that is via first-time homebuyers."

The coastal Sussex County market is still driven by retirees, and many who might have been thinking of retiring to a new home in southern Delaware from other states have reconsidered after taking losses to retirement funds.

"Even if it's not a retirement community or an active-adult community, you're still selling almost all your homes to retirees," he said. "That was not true in the housing boom -- it was mostly investors and second-home buyers."

In western Sussex County, "things are at a trickle," said Scott Lanham, president of Accessible Home Builders in Seaford.

"I expected that when the snow melted, that we would get more, things would start to pick up," Lanham said. "I'm hoping the next couple months will see an increase and get back into a more normal state, but right now it's still fairly light."

The homebuyer tax credit gave his company a boost back in the fall and early winter, as deals for qualifying new houses had to be completed by June 30, he said. "Our bump has already been received -- and we did see a notable bump."

Once an equilibrium is reached between supply and demand, the recovery will be positioned to accelerate, experts say. Some recent data suggest that's starting to happen.

The most crucial indicator of healthy momentum is the value of homes, and there is evidence nationally and in Delaware that prices are feeling upward pressure. National home prices dipped only 0.7 percent in January 2010, compared with January 2009 -- which marked a significant improvement over the previous month's year-over-year price decline of 3.4 percent, according to the real estate research firm First American CoreLogic.

Joel Naroff at Naroff Economic Advisors predicts home sales will continue growing:

"Job growth, the economy is coming back; Realtors are listing -- everything seems to be working in the positive side of the cycle," Naroff said.

The question is how the market responds to rising mortgage rates.

This month, U.S. mortgage rates jumped to the highest level in almost eight months. Some predict that rates for 30-year loans -- still at about 5.25 percent -- may rise to 6 percent -- a level not seen since November 2008 -- by the end of the year.

The homebuyers' tax credit will only cover deals signed by April 30 and closed by June 30, then it will vanish.

"It helped, but I've got people who don't qualify for the credit, and they're still buying," said Brian Pomije, a Realtor with Patterson Schwartz & Associates in Wilmington. "People are feeling a little more stable in their jobs."

In the end, it will be confidence in the job market that completely resolves the housing crisis, experts believe.

"No. 1 is solid employment, or at least growth in employment," Handler said. "That's holding a lot of people back from making their move, which is understandable, but sort of unfortunate, because it's a great market and rates are really low."

This story contains information from Bloomberg News, the Associated Press and staff reporter Dan Shortridge. Contact Eric Ruth at 324-2428 or eruth@delawareonline.com