CLEVELAND, Ohio — Home construction, a business nearly left for dead during the recession, might be awakening in Northeast Ohio.
Economists predict a slow but steady recovery for home building on a national scale. Sales are up, single-family housing starts are rising and builders are pulling more permits, early indicators of activity.
Experts are less enthusiastic about the Cleveland area, where population loss and a changing economy hindered construction long before the dark days of 2008. Still, mounting interest from buyers, a tight supply of new homes in some local communities and general improvement in home sales are feeding hopes that the region’s builders have survived the worst of a painful, protracted slump.
In Cleveland, builder Michael DeCesare has three pre-construction sales at a townhouse project no lender would touch. In Rocky River, WXZ Development revived a bank-owned townhouse project where nine of 11 units sat empty for years. In Lyndhurst, Joseph Aveni is bringing back his stalled Acacia Estates project, where he lives in one of the few homes finished before the housing market crashed and the neighboring golf course was put up for sale.View full size
For the first time in at least 10 years, membership is rising at the Home Builders Association of Greater Cleveland. The trade group, which represents builders, remodeling companies, agents and other businesses, has lost more than 60 percent of its members since 2003. This year, the local HBA is reporting a net gain of 32 members.
It’s not much — but, hey, it’s something.
As David Crowe, chief economist for the National Association of Home Builders, says: “It’s been so awful that it doesn’t take much to make you feel better.”
Builders in Ohio started construction on 12,500 houses, apartments and condos last year, the NAHB says. The group predicts that statewide housing starts will be roughly flat this year. In a good year, Ohio might see 40,000 to 50,000 starts, said Vincent Squillace, executive vice president of the Ohio Home Builders Association.
Projections show construction rising through 2013, but most of that growth will occur in the southern half of the state.
In the Cleveland-Elyria-Mentor metropolitan area, housing starts hit a low of 1,700 last year and will hold flat in 2012, according to NAHB data. Builders will start work on 2,000 houses and apartments next year, Crowe’s staff predicts.
“What we don’t see is a continued decline in the number of new home starts in Northeast Ohio,” said Bill Martin, the president of Barrington Homes in Concord and president of the Ohio home builders group. “That’s the good news, I guess you could say.”
Local companies change to survive
To survive the recession, small builders like Barrington cut jobs and changed their business models. Martin’s company, which covers Lake County, picked up remodeling work and expanded its scope beyond cluster homes and condos for empty nesters, buyers whose children have moved away. Now Barrington builds starter homes, houses for suburbanites seeking more space and custom projects for people who already own their land.View full sizeJohn Kuntz, The Plain DealerAfter several brutal years, the home building business seems to be stirring. A model home built by Jacob Homes, part of Legacy Homes of Medina, is seen through the window of a partially built house at the Columbia Reserve community. The model was one of 23 properties featured during the local Parade of Homes, an annual showcase put together by the Home Builders Association of Greater Cleveland. The event ended Sunday.
“You need a diversity that you didn’t have before in order to remain successful,” Martin said.
Dozens of small, family-owned builders born and bred in Ohio are gone. Some were ailing before the recession, thanks to the state’s protracted economic struggles.
Others hit a wall in 2008, as lenders pulled out of real estate, resale inventory piled up and consumers shied away from big purchases like homes.
At struggling subdivisions, construction stopped.
Most companies that quietly shut their doors during the recession won’t re-emerge. But some broken developments are stirring.
Last year, Aveni dusted off plans for 17.9 acres just east of Acacia Country Club in Lyndhurst.
In 2005, Aveni bought the land from the club to build 46 single-family homes and townhouses.
But shareholder disputes and litigation at the private club created uncertainty. The club’s leaders considered selling Acacia’s 160-acre property, near the Beachwood Place mall and Legacy Village shopping center.
Unable to guarantee a golf-course community, Aveni gave back deposits on 17 homes. He moved into one of the completed townhouses, a two-story home with a spacious basement, large closets, granite countertops and high ceilings. And he waited.
One of the best-known players in Northeast Ohio real estate, Aveni felt the market turning last year. He revised plans for Acacia Estates, reducing lot and floor sizes, tweaking features and cutting prices. The original homes, at 2,500 to 4,000 square feet, started around $600,000. Most of the new houses and duplexes will cost $350,000 to $450,000.Gus Chan, The Plain DealerDeveloper Joe Aveni, left, and builder Pat Perrino talk outside a custom home under construction at the Acacia Estates community in Lyndhurst. Perrino recently partnered with Aveni to revive the project, which stalled after only four homes were built. The redesigned project includes single-family homes and duplexes. Most will be priced between $350,000 and $450,000.
Custom homebuilder Pat Perrino recently partnered with Aveni on the development and has started construction on three homes, including two models. Perrino, who also works in Willoughby Hills, Solon and Pepper Pike, says he’s fielding five calls a week from out-of-town buyers.
Builders say jobs in health care, insurance and energy are bringing people to Northeast Ohio. With new projects including a casino in downtown Cleveland, both transplants and local buyers seem more optimistic about the region.
“The traffic coming in is ready, willing and able – a lot more than they were last year,” said Tony Barbee of PulteGroup Inc., a Michigan-based builder with communities in Strongsville, Copley, Hudson and other Northeast Ohio suburbs.
High gas prices and a desire to live near attractions are driving some families back in from the far-flung areas, Perrino said. And older couples in the eastern suburbs want to downsize, if they’re able to sell their existing homes. The buzz that started late last year in the home resale market appears to be spilling over into new construction.
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“It’s better than it has been,” Barbee said. “It’s not fantastic, but it’s solid. If you’re in the right sub-markets where there’s very limited supply and high demand, it’s very strong relative to what our expectations were. When you’re in some markets where there’s a lot of resale supply and pricing is still suppressed, it’s probably a lot harder.”
Barbee would not share numbers on Pulte’s local sales. He said business in the Cleveland area is up about 15 percent over the company’s projections.
“All the production builders are slamming now,” said Scott Phillips Jr., a Realtor who runs a new home sales team at Keller Williams Realty Greater Cleveland. “Pulte and Ryan (Homes) are kicking tail right now. They’re all doing really well.”
At Enzoco Homes in Munson, sales are up 17 percent from the first half of 2011, said Enzo Perfetto, the company’s manager and president of the Greater Cleveland home builders. This spring, Perfetto and several other builders took over 40 or so lots at the sluggish Mountainside Farms subdivision in Concord and started construction again.
Small builders reach into their own pockets
Borrowing costs for buyers are near historic lows.
But financing remains a huge hurdle for builders, who need a model home to pitch a project. With the exception of a few community banks, lending to local builders has not loosened up since 2008, said Martin, the Ohio home builders president.
So speculative building is rare. Many small companies have turned to custom work, for buyers who already own land or have cash. At Enzoco Homes, Perfetto relies on construction-to-permanent loans, obtained by buyers. Those loans cover the cost of building a house, then become a mortgage.
“You can’t find a bank out there that will do any sort of financing for a home that’s not sold,” Perfetto said.
In select cases, developers are finding enough pre-construction buyers to finance townhouse projects, where shared walls make it necessary to build several units at once.
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Abode Living recently started construction on 17 townhouses at the Clifton Pointe project in Lakewood. Last year, WXZ Development of Fairview Park acquired the bank-owned Beachcliff Row property in Rocky River and finished the largely empty building. The nine vacant townhouses have been sold or are under contract, and WXZ is planning a second phase, with 16 homes.
And the company is remaking the Hamlets of Rocky River, where sales to empty nesters fizzled during the recession. James Wymer, WXZ’s chief executive officer, said the new homes will be a little smaller, priced in the upper $200,000s and low $300,000s and designed to appeal to young professionals.
Wymer plans to build a model in the community, off Center Ridge Road. But he’ll pay for it out of pocket.
To build his Waverly Station townhouses in Cleveland’s Detroit Shoreway neighborhood, Michael DeCesare put up his own money and appealed to family and friends. The developer said no bank would lend on the $5 million project.
DeCesare plans to break ground in July for six of 22 homes, which he’ll market at an average price of $199,900. He has three pre-construction sales – a first in his 10-plus years of building in the city.
“We think, over time, that there will be a rush back to the market, because we’re still a state of 11.5 million people,” said Squillace, of the Ohio home builders group. “And more than half the homes in Ohio are old, built before 1970. . . . There are always going to be people who want to build their dream home. There are always going to be people who want a new house.”
But, he added, “You’re never going to see those tremendous starts. Ohio’s had one of the lowest housing starts, per capita, for 20 years. From that statistic, it’s clear that there’s not a lot of economic vibrancy here.”