JANESVILLE—New home construction in Janesville is off to its hottest start in years even as home sales slow and average sale prices continue to rise, according to local market data.
In recent years, the average home construction season has brought fewer than 70 new Janesville homes and sometimes as few as 30 in a year.
But in the first three months this year, builders filed for 25 new home construction building permits, the most in a quarter since third quarter 2009.
It’s not clear if the housing market will cool off or continue warming up. Some contractors and suppliers say the market still faces headwinds even as contractors pour more concrete foundations.
One clear trend has emerged over the last two years: The days of Janesville’s market being flooded with distressed and foreclosed, ranch-style “starter homes” marked down well under $100,000 have come and gone.
And the market-bottom prices of 2012 are long gone, too.
Existing residences in the “starter home” bracket that are now coming on the market have climbed in average price to anywhere from $115,0000 to $125,000, and homes sale prices overall are averaging $132,000—in large part because of higher demand and lower supply of existing homes.
The uptick in sale prices is being driven in part by buyers buoyed by a stabilizing local jobs market. Residents are looking to upgrade from starter homes to larger, second homes.
“People had it hard for years to try to have something, but now they’re getting back to better margins,” said Bob Sarow, who owns Wellnitz & Sarow Builders.
Some of those buyers are forging ahead and having local contractors build one for them.
Contractors who build homes are competing on prices against a stock of existing houses in the $150,000 to $200,000 range, according to project estimates in city building permit requests.
Those homes aren’t nearly as abundant as smaller, single-family homes that were moving quickly and in large numbers in 2014 and 2015.
That might have tempered sales recently. According to local market data, Rock County home sales overall dropped about 5 percent in the first quarter this year compared to the first quarter last year.
For housing starts, it’s spelled an improvement.
“At the end of the day, there’s definitely more building going on. Of course, it’s relative to how things were in the last several years, in the recession—and that was bad, and slow. It’s gotten better,” Sarow said.
The market for building new homes is still somewhat bridled compared to pre-recession years, in large part by increased costs in building materials and labor but also by a shortage of local land that’s ready and available to build homes.
The challenge for builders, Sarow and others said, is finding a place to build and building homes at a price that fits market demand.
The city no longer automatically gives loans up front to developers or builders to cover subdivision infrastructure costs, in part because of speculation developments that soured or went broke in the recession.
Those costs now roll into the price of homes built on contract—which is how the bulk of new construction is being done here, contractors say.
Costs per square foot for new construction have increased up to 30 percent in the last few years.
Scott Bowers is corporate sales and marketing director of Janesville company Marling Lumber. Bowers said Marling, which supplies materials and consults with contractors on building plans for new construction homes, has been busier over the winter and this spring than any time in his six years as sales director.
“It felt like the summer for us all winter long,” Bowers said.
Still, Bowers acknowledged challenges for builders hitting the mark on costs for medium-sized homes—whether it’s a ceiling set by homeowners plans, building costs, assessments of existing homes or lending standards.
“It’s a real challenge,” Bowers said. “I hate to use the words dumb it down, but you’ve got pressure to do something. That’s tough, especially if it’s somebody who it’s their second or third home, and they’re looking to build their dream home.”
Rod Hirsch, who owns RJ Hirsch Builder, this spring is building a house on contract in an infill lot—an open lot between two other homes—on Pontiac Drive on the city’s northeast side.
He said Hirsch no longer builds on speculation—a method in which developers or contractors build a home and then try to find a buyer.
Even if contract building is somewhat stickier right now, Hirsch’s company plans to stay with it in the near term.
For him, a price ceiling might be preferable to a housing bubble. Bubbles tend to break.
“We learned our lesson on speculation builds with the recession, the bubble. We got stuck … a lot of people got stuck holding the bag,” Hirsch said.