County home building soars/ Low mortgage rates fuel 26.5 percent jump

0 Comments | Gazette, The (Colorado Springs), Nov 2, 2002 | by Rich Laden

Low mortgage rates continue to be the home building industry's best friend.

Driven by the lowest rates in decades, El Paso County single- family home building permits totaled 392 in October - surging 26.5 percent over the same month last year, according to figures released Friday by the Pikes Peak Regional Building Department.

For the first 10 months of 2002, single-family permits totaled 3,946, a 10.2 percent drop from the same period last year. The year- to-date total was off by more than 20 percent earlier in 2002.

Despite strong construction activity in October, some Colorado Springs economists and members of the real estate industry are wary. Rising mortgage rates and a failure to create jobs could lead to a construction downturn next year, they say.

For now, rates of about 6 percent have kept home builders busy, said Bob Jones, vice president of marketing and sales for Melody Homes in suburban Denver. Melody builds homes in two El Paso County neighborhoods.

"People are able to trade their (apartment) rental payment for a mortgage payment," Jones said.

Other factors boosting home construction include builder incentives, population growth and new groups of owners entering the market - such as first-time buyers or existing homeowners who want smaller homes, Jones said.

The busiest home builders tend to be those constructing lower- priced homes - less than $250,000. Melody's homes average $180,000.

Acuff Homes Inc. in Colorado Springs, which builds semicustom homes averaging $380,000, will construct about 50 homes this year, down from 65 to 70 over each of the past few years, said Russ Acuff, president and owner.

Still, low mortgage rates help buyers of even higher-end homes. Acuff said his customers typically are homeowners who built equity and are looking to move up; low mortgage rates help persuade them to go ahead with their purchases, he said.

If the Federal Reserve Board cuts interest rates when it meets next week, mortgage rates could remain low, said Fred Crowley, an economist with the Southern Colorado Economic Forum at the University of Colorado at Colorado Springs.

If rates were to rise, however, and without new jobs, Crowley fears the pace of construction would slow.

Other worrisome home building and construction industry trends include an increase in foreclosures and an overbuilt apartment market, he said.

Meanwhile, public buildings, parking garages, stores and hotels fueled a turnaround in commercial construction. During the first 10 months of 2002, commercial building permits totaled $172.3 million, a 1.6 percent increase over the same period last year. For much of 2002, commercial construction ran behind last year's pace.

Still, plenty of empty office and industrial space has discouraged new office and manufacturing construction. Without new employers coming to town and absorbing existing space, don't expect much new construction in those areas, Crowley said.

- Rich Laden may be reached at 636-0228 or rladen@gazette.com

Color chart: El Paso County single-family housing permits

Chart source: Pikes Peak Regional Building Department