Nearly three years into the housing slump, homebuilders in Missoula, Mont., are no longer waiting for some divine signal to tell them that the market has rebounded.
And while patience has been an important part of surviving the recession, enterprise and ingenuity are now equally relevant in succeeding in today's building industry. Developers are looking for new ways to build houses and remain solvent while their industry surpasses historically low numbers of new home starts.
Missoula's housing market has so far managed to avoid the most severe consequences of the recession. While many areas around the region saw a housing boom that climaxed in 2005, Missoula saw relatively modest growth.
Local builders didn't overextend themselves, and banks across the state maintained relatively conservative lending practices. And though homebuilders are certainly feeling the pinch here, the city's milder downturn may show what is to come for the rest of the nation after housing and development markets stabilize and builders look to market new products and services to new types of home buyers.
The Partain family is an example of the demographic to which developers are flocking. About a year ago, Jeremy and Angie Partain decided it was time to move. With two young children and a third on the way, the Partains were beginning to outgrow the cozy mid-Missoula dwelling they called home. Jeremy liked the house's location in the center of town, a short five-minute bike ride from work. But the property had virtually no yard and was what he described as "one of those infill homes," sandwiched between two trailer homes in a not-so-flattering neighborhood.
So the Partains looked around Missoula for a new home with a bigger yard and enough room for three growing boys, but didn't find anything they liked. The homes were either too old, too smallor had tiny yards like their old house. In any case, none of the homes would have been much of an upgrade. After searching for months, they recently purchased a home in Lolo, about 10 miles out of Missoula, where the houses were cheaper and lots were bigger. Sure it was a ways out of town, but it had everything they wanted — a big yard, a newly built home and room to grow. Best of all, the house was in their price range and had a number of features that would allow them to Add to the value of the home later
Adjusting to a new market
Developers are courting home buyers like the Partains during the recession because the inexpensive housing market is surviving the downturn. Young, growing families are looking for a reasonably priced home large enough for children and regard a home as more of an investment and a shelter. These buyers aren't looking for craftsman homes or huge properties. They're more interested in a home that leaves room to expand and renovate in the future to add value to the property.
Families that purchase a home during a recession normally hope to either capitalize on low house or construction prices and look to leverage their money for the most value and the best future investment. The rule of thumb is: When money gets tight, consumers get smarter about the way they spend.
Take the Partains for example. Not only did they move out of town to a growing subdivision, but they purchased a house with an unfinished basement, which they could either turn into bedrooms for the children when they got older, or finish to add value to the house.
That's a trend that Darin Patzer, owner of Bitterroot Development Corp. is seeing across the industry. He's the one that built the home the Partains bought in Lolo, and says he's planning to building more inexpensive homes targeted toward first-time buyers.
"The whole idea is just don't overbuild, Patzer says. "That's what people are wanting right now. All of a sudden they're realizing they don't need a $500,000 home."
He says buyers are looking fro small homes and wanting features like unfinished basements. They're also scaling back on landscaping, either to save money or to hold onto for an investment down the road.
Buyers are also looking to new areas to build or buy homes. In a city like Missoula that has a densely populated town center, developers who want to build less expensive houses are having to build in the county and surrounding areas where lots are less expensive.
When the Partains first started looking for a house within the city, they say they were surprised and frustrated by the cost of houses in town.
"There was a wall around $270,000 or $280,000," Jeremy says. In-town properties below that price were generally small and run-down. But just outside of Missoula, in Lolo, homes cost tens of thousands of dollars less.
The Missoula Office of Planning and Grants reports that this trend of building outside of town has driven the total number of permits up nearly 30 percent in the county, while a sluggish home market within city limits has resulted a considerable drop in the number of permits issued in the city.
Building permits show the disparity between the city and county even more clearly. Within city limits, the first three months of 2009 saw the number of building permits drop nearly 30 percent from the same period last year. And the total cost of the homes built dropped from $6.7 million to $1.8 million, according to the U.S. Census Bureau. Meanwhile county building permits were comparable to last year's figures and the cost of those homes only fell from $6.3 million to $4.1 million from last year.
The resurgence of remodels
This new trend toward frugality has also helped to buoy the remodel industry. The Missoula OPG also reported that permits issued for the downtown area and city center were up, likely because of the increasing trend toward remodeling homes.
Tight lending practices make it difficult for consumers to borrow enough money to purchase a house, but low materials and labor costs make it an opportune time to build, so some homeowners are opting to remodel rather than move.
Don Garramone, owner of Garramone Builders Inc. and chairman of the Missoula Remodelors Council says Missoula's remodel market is down a little, but it's still doing much better than home building industry, which has seen half as many new housing starts as compared with a year ago.
"Every remodeler I know is a little slower," he says "But I continue to get calls."
The difference is, now those calls are for smaller projects. Instead of remodeling a whole house, homeowners may only want to improve a kitchen or a bathroom, which increases a home's value more than adding onto other areas.
The resilience of the remodel industry is also attracting new businesses to the market. Even builders that used to only specialize in large developments are now bidding on small remodel contracts. And that's making the remodel industry as a whole more competitive. Companies are advertising more and depending more on the Internet, rather than word of mouth, to attract clients.
The increased competition has also forced some remodelers to adapt in order to stay competitive. They're depending increasingly on subcontractors rather than employees for labor because of the more sporadic market. And employers don't have to pay for a subcontractor's worker's compensation or insurance, which allows remodelers to bid competitively against other companies.
Darin Patzer, says home builders have had to make similar changes. He switched to using subcontractors about six years ago. Back then, it was a matter of choice whether to use subcontractors rather than employees. But in the current economic climate, home builders have to contract out work just to stay competitive. Patzer says some developers worry that subcontractors are less dependable and do lower quality work, but that hasn't been his experience.
"The subcontractors I've used are the same ones I've used for years," he says. "I trust them in every aspect of things. The best way to reassure quality is to have employees, but unfortunately any more that's prohibitive. You just can't compete."
At any rate, the Partains like their home, and the more time they spend in Lolo, the more they like it. It has a small-town feel and the neighborhood is full of other young families.
"Everyone here has young kids," Angie says. "It's real kid friendly. It's safe and it's quiet."
And Jeremy says he doesn't even mind the 10-minute commute to Missoula.
Community growth observers, however, discourage building on the fringes of town because it contributes to urban sprawl. But Missoula OPG director Roger Millar says the fact that people are looking to remodels instead of moving is an encouraging trend because that could help to counter sprawl.
It's hard to say whether these trends will have any lasting effect on the way communities and houses are built. After all, these trends are a result of dramatic reduction in the volume of new homes built, and much depends on how long the downturn lasts. But Millar is optimistic.
"I think everyone here knows it's going to come back," he says.
Chris Arneson is an intern at Headwaters News.
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