Omaha real estate glut puzzling
It's something people wonder about as the for-sale
signs proliferate and linger in their neighborhoods:
Why are so many homes for sale?
CBSHome President Larry Melichar said he gets calls
from clients asking, "What's going on?"
Jeff Swantek of East Homes said he and his subcontractors
are comparing the current housing slowdown to the
one they experienced in the early 1980s but are scratching
their heads about why.
"It got this bad when interest rates were 15
(percent) to 20 percent," Swantek said. "It's
slow like that now, but it's different because there's
nothing to really blame it on."
Interviews with 10 real estate professionals -- four
top-selling agents, three agency presidents, two builders
and one appraiser known for his supply-and-demand
analyses -- yielded a range of possible answers about
why the housing supply is so big.
Most describe a market that had gotten so red hot
it just had to cool off.
A string of record sales years couldn't go on forever,
said Melichar, who prefers to describe what's happening
as a market correction -- one that he believes already
may have bottomed out.
Unfortunately, said NP Dodge's President for Residential
Sales Mike Riedmann, it takes a while for everyone
-- from developers and builders to buyers and sellers
-- to adjust.
"It can take 12 to 18 months to bring a new
subdivision on line," Riedmann said. "The
unfortunate thing is it takes as long to dial down."
Several of those interviewed see the roots of the
current oversupply in a couple of extraordinary years
-- the years when the Gallup Organization, Union Pacific
and ConAgra moved hundreds of employees to Omaha.
Both 2003 and 2004 generated a lot of relocation activity
for area real estate firms, but that dropped off sharply
in 2005.
Builders, however, kept building.
A lot of builders didn't have enough speculative
housing, or housing built without a specific buyer
in mind, when those buyers came to town, said Vince
Leisey, president of Prudential Ambassador Real Estate.
"They felt they missed the boat," he said.
"They reacted and built more spec housing.
"Unfortunately, U.P. is not moving 500 people
in every year. Gallup is not building a new headquarters
every year. The reality is that corporate relocation
slowed.
"Basically, we went and overbuilt, thinking
that activity would continue forever. It didn't."
Appraiser Gregg Mitchell of Mitchell & Associates
agreed.
He said some builders, beginning in the fall of 2004,
decided to put a modest three, four or five additional
speculative houses on the market.
"Multiply that by a large number of builders,"
he said. "In the spring of '05, even though it
was a terrific sales year, they put more inventory
out there than the market could absorb."
That situation was intensified, Melichar said, because
a hot market attracted more new builders -- either
former subcontractors who decided to become builders
or builders from other markets.
A lot of builders had optioned lots that they had
to close on, said CBSHome agent Ralph Marasco.
"So they start houses and, in the midstream,
the market slows down," he said. "They got
caught."
At the same time, Marasco said, sellers of existing
and new houses had new competition from the sudden
growth in the downtown condominium market. A single
project would add dozens of listings that could remain
for months as buildings were constructed or renovated.
"For the first time in the history of the city,
we have another entry," Marasco said. "A
lot of the downtown condos are hitting the market
before they're even built."
In July, for example, with 5,925 total listings,
condos accounted for 724 listings, new construction
for 1,509 and existing homes, 4,416.
Builders did slow their building in 2006, taking
out 28 percent fewer single-family building permits
through September than during the first nine months
of 2005.
"Maybe we didn't pull the reins back soon enough,
but every builder I know is building fewer houses
than a year ago," said Kent Therkelsen of KRT
Construction, president of the Metro Omaha Builders
Association.
The problem, he said, is that more existing homes
are on the market.
Melichar said some sellers have been influenced by
reports extolling the high returns that property owners,
most often in coastal markets, have reaped in recent
years.
"They hear about fabulous prices and a certain
number of the public says, 'I'll see if I can sell,'"
he said. "They're on a fishing expedition. They
put a line in and see what they can get. Then, when
it slows, there's a time delay for everyone to figure
it out. That's when you build a glut."
Sometimes people who can't sell their existing home
back out of a contract to purchase a new home, turning
that home into a spec home, Therkelsen said.
And existing home listings grow as new-home buyers
list the home they're planning to leave. Particularly
in west Omaha and Sarpy County, potential buyers usually
consider both new and existing homes as they shop,
Leisey said.
The number of buyers and their pace of buying slowed
in 2006 as interest rates edged up and the housing
supply gave them more options and more time to make
a decision, those interviewed said.
Melichar said it may be that many people who would
have been buying this year acted a year or two earlier
when interest rates hit historic lows.
Some agents said they see a mismatch in what's available
for sale and what buyers want.
CBSHome agent Kathy Welch described two houses for
sale across the street from each other, one ranch
and one two-story. The smaller ranch sold sooner and
for $10,000 more than the larger two-story across
the street. The young couple who bought it said they
chose the ranch because they thought it would have
better resale value, Welch said.
Teresa Elliott, a Prudential Ambassador agent, agreed
there seems to be more two-story, four-bedroom homes
for sale than buyers for them.
"My own analysis is the baby boomers are downsizing,
so we've got a lot of two-story homes on the market,
but there aren't the people to come in and buy the
big family homes," she said.
CBSHome agent Bill Black said the metro area needs
"an infusion of jobs, either new employers or
a lot more hiring by old employers. Three, four, five
years ago, we were hearing all about employers bringing
people to town. Now we hear nothing."
The good news, Riedmann said, is that it's a great
time to be a buyer. He said he just got one daughter
into her first home and is working to buy another
house for a second daughter.
Therkelsen said builders are more willing than ever
to work with people to get their homes sold.
"If it's done and sitting there, they don't
want it sitting through the winter," he said.
"It's really a good time to buy a new home."
