Metro home sales boom may not last

[Allan]

Companies such as Pulte Homes of Michigan in Royal Oak, the state's largest home builder, say they'll likely become more aggressive on pricing if mortgage interest rates rise considerably in the coming months.

Metro home sales boom may not last

Code changes and a projected rise in mortgage interest rates could stall sales.

By R.J. King / The Detroit News

Metro Detroit home builders had a boom year in 2004 despite the sputtering local economy, but a projected rise in mortgage interest rates and pending changes in energy codes could cool sales in the year to come.

Local builders took out an estimated 24,000 permits in 2004, putting the region on pace to record its second best year for new home construction, trailing the roughly 25,500 permits recorded in 1998.

"Metro Detroit had a pretty rough year with job contraction now in its fourth year, but the low interest rates really helped to stoke new home sales," said David Seiders, chief economist of the National Association of Home Builders in Washington, D.C. He will present an forecast to area home builders Wednesday in Sterling Heights.

The housing growth in Metro Detroit more or less mirrored new-home building activity nationwide, Seiders noted, but could slow down if the Federal Reserve increases interest rates as expected.

Interest rates were relatively flat for the year, with a 30-year fixed-rate mortgage averaging 5.45 percent last week among 70 lending institutions in southeastern Michigan. A year ago, the same rate was slightly higher at 5.55 percent, according to www.rmcreport.com in Brighton.

Seiders said rates could jump as much as 1 percentage point this year.

The difference in rates can be notable. For someone financing a $200,000 home with a 30-year fixed-rate mortgage at today's rate of 5.50 percent, monthly payments would be $1,135.58, according to www.bankrate.com.

But the same $200,000 home with an interest rate of 6.50 percent would cost $1,264.14 -- another $128.56 in monthly payments.

Sally Janson of Royal Oak, who is eyeing a new condominium in Novi, said she is considering staying put if rates rise too quickly. "I'd like to get all the bells and whistles, but if I can't, I'll likely stay in Royal Oak," she said.

Home builders say they'll likely become more aggressive on pricing if rates rise considerably in the coming months.

"There's no questions low interest rates have helped fuel our growth," said Jim Bagley, president of Pulte Homes of Michigan in Royal Oak, the state's largest home builders. "But we've been very aggressive on price, and our quality was ranked No. 1 by J.D. Power and Associates. Buyers respond to a host of factors when considering a new home."

While builders admit sales may slow this year off 2004's hot pace, solid growth is projected for the next 25 years, said Dominic J. Moceri, partner of Moceri Cos. in Auburn Hills, and 2005 president of the Building Industry Association of Southeastern Michigan in Farmington Hills, a trade group representing 2,200 builders and remodelers. The association predicts that during the next 25 years, Michigan will need at least 1.7 million new houses.

"That will create a lot of jobs in the construction industry and help fuel the sale of home furnishings, landscaping and other home purchases," Moceri said. "We're certainly bullish on the future."

Through October, home builders recorded 21,210 permits, up 7.4 percent from the same 10-month period a year ago, according to Housing Consultants Inc. in Clarkston. Communities that recorded the most residential permits were Canton Township, Macomb Township, Shelby Township, Commerce Township and Brownstown Township.

Across the housing spectrum, starter homes priced at less than $150,000 are moving briskly as low mortgage rates help attract renters. Homes priced at less than $300,000 are moving steadily, while residences priced from $300,000 to $1 million are taking longer to sell. Reasons include the sluggish economy and job fears, which frighten off dual-income families, the prime market for higher-priced homes.

Homes in the $1 million-plus luxury market are moving steadily, said David Kellett Sr., CEO of Kellett Construction Co. in Bloomfield Hills.

"We sold homes priced from $2.7 million to $3.3 million last year, and we have several more in the hopper," Kellett said. "Some of the trends we're seeing are more concerns about safety, indoor air quality and lighting."

Coming changes to the International Building Code, set to take effect in late February, could add up to $6,000 to the price of a new home, say building experts. The changes, which Michigan is scheduled to adopt, require that builders add more insulation and other energy-saving features in new homes.

Home activity in Metro Detroit is expected to improve from last year's results. Through November, sales rose 18.8 percent to 45,742 homes, but the median sales price fell 0.5 percent to $165,260 over the same 11-months in 2003, according to Realcomp II Ltd. in Farmington Hills.

You can reach R.J. King at (313) 222-2504 or [email protected]. Source: www.rmcreport.com Source: www.rmcreport.com

Changes to the International Building Code, set to take effect in late February, could add $6,000 to the price of a new home.