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Housing market thrives, but for how much longer?

New-home construction, the red-hot industry that remained a bright spot even during the economy's darkest days, is finally starting to show signs of a slowdown.

Of course, you wouldn't know that by looking around Augusta.

The rising interest rates and stratospheric home prices starting to cool many housing markets across the nation have yet to stop the homebuilding juggernaut in the region's three largest counties, where new single-family construction permits are up 18.4 percent on a year-to-date basis through the third week of September.

Nationally, housing permits fell 4.5 percent from August 2004 to August 2005, the latest figures available from the Commerce Department.

What makes the Augusta market immune from the national trend? For one thing, people in the area can still afford new homes.

"Prices in Augusta, and most of Georgia, reflect building costs instead of speculative premiums," said Jeff Humphreys, a University of Georgia economist and director of the Selig Center for Economic Growth.

The Augusta area is one of only 15 markets in which home prices are considered "undervalued" relative to the prevailing income levels of its residents, according to a survey of 125 metro areas by Wellesley, Mass.-based Local Market Monitor for Consumer Reports magazine.

Homes in the other 110 markets were considered either "fair value" or "overpriced."

"You can still buy a house in these areas reasonably compared to other parts of the country," said Joe Scire, the resident of Medallion Homes and the Home Builders Association of Aiken County.

Low housing costs were among the main draws for Daniel and Siera Gollan.

Mr. Gollan, a naval officer, selected Fort Gordon for his last assignment after visiting Augusta more than a year ago. The Maryland transplants recently moved into their new estate-size home in the Appling area of Columbia County.

They enjoy the area so much that they talked Mr. Gollan's parents in Arizona into building a home here.

"We're going to colonize Columbia County with Gollans," said Ms. Gollan, who recently moved her sister-in-law's family into her home while they search for a house of their own in the area.

The chances are they will find something in their price range, whether they buy a new home or an existing one. This year, the median home sale in the Augusta area is $125,685, according to the Greater Augusta Association of Realtors. That's well below the $219,400 national median reported last month by the National Association of Realtors.

As long as local home prices don't get too far out of whack, demand for new homes should remain strong. In other words, builders will keep building as long as buyers can keep buying.

"The market is still very strong here," said Jake Ivey, the president of J.W. Ivey & Associates and the head of the Builders Association of Metro Augusta.

Builders such as Nordahl Homes Inc., one of the largest in the market, remain bullish on new construction. The company recently acquired a 197-acre tract across from Fort Gordon's Gate 5 that could be developed into several hundred home sites.

"We're pretty much on track with (the construction) we did last year," Nordahl Vice President Donna Redd said. "We're maybe a little higher. We've not seen a slowdown."

Aiken County, where new-home construction is outpacing Richmond and Columbia counties, continues to attract retirees from high-cost areas in the Northeast and Florida.

"It's pretty obvious that Aiken has been discovered by the retirement community, and that's not a bad thing," Aiken County Administrator Clay Killian said.

But even an influx of wealthy retirees isn't enough to keep the area's home construction industry chugging along at its current rate, some say.

The area's increase in home prices, though relatively slow compared with that of many other markets, is outpacing local wage growth and the overall rate of inflation.

The danger is that, over time, fewer renters will be able to buy their first home and current homeowners will be less able to "step up" to more expensive homes.

"A lot of markets have really gone over the edge on pricing," said Lamar Crowell, the president of Keystone Homes. "We haven't reached that point yet, but we're creeping up there. It's going to happen; it's cyclical. We'll reach a point where consumers will be unable to pay."

Statistical evidence appears to support Mr. Crowell's concern.

Augusta-area home prices increased 29.3 percent during the past half-decade, according to the Office of Federal Housing Enterprise Oversight. That's not as fast as the price acceleration in Southeastern markets such as Charleston, S.C. (49.2 percent), and Savannah, Ga. (45.7 percent), but it's on par with Columbus, Ga. (29.8 percent) and Atlanta (28.1 percent) and even exceeds the rates of cities such as Macon, Ga. (21.7 percent), Greenville, S.C. (21.5 percent) and Charlotte, N.C. (18.2 percent).

Local wages, on the other hand, have not kept pace. In 2003, according to the Bureau of Labor Statistics, wages in the Augusta area grew 2.9 percent from the previous year. During that time, home prices grew 4.1 percent, according to the Office of Federal Housing Enterprise Oversight. In 2004, the year for which the most recent figures are available, home prices jumped 5.7 percent while wages inched up 2.7 percent.

"Wage growth is important for most people because that's their primary means of paying a mortgage," said Bureau of Labor Statistics spokesman Michael Wald.

The other threat to the area's housing boom is the rising cost of building materials. Rebuilding in the aftermath of Hurricane Katrina, which destroyed 10 times as many homes as Florida's Hurricane Andrew in 1992, is sure to increase demand - and costs - for lumber, concrete and other raw materials.

"Our cost of building is going up quite substantially. It could push prices so high people can't afford to buy them," Mr. Ivey said.

While industry watchers are unsure when the slowdown in building will hit this area, most believe the economic effects won't be as severe as in markets where home construction has been based more on speculative frenzy than actual demand.

"Because we didn't have a big run-up in home prices, there's not going to be payback in terms of a bubble burst," Dr. Humphreys said.

"If there is a peaking and a slowdown, builders aren't going to get caught with a lot of product on their hands."

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