Sales of new houses, as well as the number of permits to build more, are down significantly throughout central Puget Sound as buyers stay away and builders scale back.

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It’s hard to find physical evidence that homebuilders in the Puget Sound area are suffering through what may be the worst downturn since the 1970 Boeing bust.

For-sale signs are lingering longer on new houses, but there’s no tide of abandoned, half-built houses, nor are major subdivisions canceled.

Rather, the downturn plays out in stories like David Main’s. One of many smaller builders, he’s been putting up single-family homes in the Seattle area since the 1970s.

In a good year, like 2005, his Main Street Builders would employ four full-time staffers plus subcontractors and complete six or seven “spec” houses — those built on speculation that someone would buy before the home was finished.

“Right now we’re doing no new speculative stuff,” Main says, “and our company is down to myself and my wife.”

Two of his spec homes languish unsold. But it’s how they’re languishing that has Main flummoxed.

Buyers come to his open houses, he says, and give them “great reviews.”

“They’re interested,” Main says. “They engage, but they’re hesitant after they leave to follow up at all,” even though he’s offered “fairly significant” price reductions, upgraded home features and other incentives.

“I’ve just never been in a market that’s gone down … where there wasn’t some trigger mechanism that would get them to make offers,” he says.

Gun-shy buyers aren’t unique to the new-home market, and that’s the problem. As the mortgage industry has staggered, foreclosures have risen, and prices have dropped throughout the market. Buyers for all types of homes sit on the sidelines.

Cumulatively, all these factors are causing a major decline in new-home construction here because new-house buyers mostly are move-up buyers. If they can’t sell their present homes, they can’t move up.

“I’d say it’s not as bad now as 1970, but worse than the slowdowns between it,” says Bill Connor, the retired head of Connor Homes, who still watches the industry. “It doesn’t seem to make any difference in the price range, as far as I can tell.”

Permits to build single-family houses — a key indicator of the health of the industry — are projected to be down 27 percent this year, compared with last year, throughout King, Pierce and Snohomish counties, reports Hanley Wood Market Intelligence, a construction-analysis firm.

Meanwhile new-home sales in August in the three-county region declined 34 percent compared with the previous August to just 481 sales, according to Hanley Wood’s most recent numbers.

The median-base sales price dropped from $338,950 to $319,950 in the three-county region. (Base refers to the price before a builder upgrades for such things as higher-quality carpeting or countertops.)

“It’s a difficult time for any builder to move forward because the market is so unsteady,” says Jonathan Dienhart, Hanley Wood’s director of published research. “It’s hard for them to determine how long it will take for a certain area to absorb a certain amount of homes, so it doesn’t make sense to move forward.

“A lot of them are in a holding pattern. They’re going to wait it out.”

But buyer reluctance isn’t the only issue causing the construction slowdown.

Lenders are reining in construction loans, says Bill Hurme, president of TeamBuilder John L. Scott, which specializes in selling new homes.

“It’s not easy to get a house-construction loan these days if you’re a builder,” he says, recalling the recent experience of a local developer who builds more than 100 homes a year.

Hurme says the builder has a $15 million line of credit with his bank, a zero balance, and has paid off every construction loan early.

When the builder recently asked his bank for 10 construction loans to build 10 homes, it told him he could have five — and “he’d have to put in more of his own money to get the other five,” Hurme says.

This lending squeeze is widespread, Hurme says, and will “result in a constriction of the industry.”

Indeed, Main says he knows of a few fellow builders who are now out of business or close to it.

“The smaller guys, we dance close to the flames,” he says candidly.

Cities throughout King County are feeling the effects of this slowdown.

Bothell, for example, is seeing a deep drop in new residential building permits, senior planner Jeff Smith says.

As of Oct. 16, zero plats (projects with five or more lots) had been filed this year, compared with 11 each in 2007 and 2006 and 10 in 2005.

A number of pending plat applications remain active but “only a few really are pounding on my door to get them approved, like they used to,” Smith says.

From 2004 to 2007, Bothell permitted about 700 new single-family home sites — and that didn’t seem like enough to meet demand. Now, lots are sitting.

Kamuron Gurol, community-development director of Sammamish, says applications are pending for 30 plats and 25 short plats (projects with four or fewer lots), totaling about 900 individual lots.

While single-family lots are being created, building-permits applications on established single-family lots have slowed significantly, he says.

In Federal Way, Greg Fewins, director of community development, says a few plats are working their way through the process, but he doesn’t expect to see many building permits coming in after that.

However, the key to future home construction is plat development, and more than half the plats that were supposed to come out this year won’t, says Todd Britsch, president of New Home Trends, which tracks Puget Sound land supply.

That falloff is happening because lot development has outpaced new-house sales for nearly two years.

Now the area has a three-year lot supply, Britsch estimates.

“Until the mortgage crisis gets fixed, buyers are out of the market, and developers are not bringing lots to market,” he says.”

Britsch predicts that will mean “a huge shortage” of building lots three years from now — which would drive up new-house prices.

Hurme seconds that forecast.

“There’s going to be big price increases coming in a relatively short time, like 18 to 24 months,” Hurme says.

Elizabeth Rhodes: 206-464-2306, erhodes@seattletimes.com

Stuart Eskenazi: 206-464- 2293, seskenazi@seattletimes.com