This article is the second of a two-part series that looks at the housing market in Louisville. Part 1 examined multifamily housing, and Part 2 addresses the rebirth of subdivision development.
Subdivision projects in Jefferson County that were abandoned during the national foreclosure crisis are being revived, and new developments are in the works, showing that homebuilders and developers are feeling more confident about the future of the housing market.
However, the crisis forced some builders and building supply companies to go out of business, creating a shortage of qualified companies to take advantage of the need for more new construction, keeping inventory in Jefferson County lower than demand.
Insider Louisville plotted the apartment, condominium and subdivision projects that are under construction or in development on the map below to show readers the scale and scope of housing developments in Jefferson County. IL used city records to compile the data points for the map.
The green markers represent new subdivision project and expansions. The blue markers are apartment development; the red are condominiums; and the purple are projects that feature multiple housing types. (To see the details of the projects, click on the markers for a description and location.)
‘The new normal’
Thirty subdivision projects are underway or have started going through the city approvals process. Of those, 17 are new subdivisions, and the rest are expansions of existing subdivision. Most of the subdivisions are concentrated in the East End and southeast Jefferson County.
An estimated 2,500 new homes were built in 2016, according to Pat Durham, executive vice president of Building Industry Association of Greater Louisville.
Subdivision additions that were mothballed during the foreclosure crisis are now being built out, and land is being leveled for new subdivisions. “We are not even back to half of what we did, but it feels like a boom,” he said.
In 2005 through 2007, homebuilders erected 5,000 to 6,000 new houses a year, Durham said. “You couldn’t build them fast enough.”
When the housing market crashed, that number dropped to below 1,000 houses, he said.
“We lost builders; we lost developers; we lost suppliers,” Durham said. “People went out of business, because our market dropped so dramatically.”
In 2017, he expects new-home construction to be between 3,000 and 3,500 houses, calling that level “the new normal.”
“I am not sure we will ever see that much new construction again,” he said, referencing the pre-recession numbers. “I think people are happy where we are. I think we are getting back to a more balanced approach to lending, so more people are able to build or buy new.”
Fewer suppliers to meet the demand
Most new-home construction is speculative, meaning a developer builds a house in the hopes that someone will buy it in the future. In 2008, banks started to tighten the reins on lending practices, and homebuying slowed drastically, leaving builders with speculative homes they couldn’t sell and debts that they owed the banks.
When the housing market crashed, businesses closed, and some people exited the new-home construction business. Now that the market has picked back up, there is a need for more developers and suppliers, but developers are still reluctant to return to new-home construction.
“It was just financially devastating for us,” said Steve Hartung, owner of Java Construction. “I think anytime something like that happens in history, it opens people’s eyes and makes them think a little more.”
Java Construction has built more than 200 single-family homes in Jefferson County, but when the market crashed, Hartung shifted his business model to focus more on home remodeling.
“It made it a little less stressful,” he said.
Even though Hartung believes that the market for new construction is “extremely strong,” Java Construction has continued to take remodeling jobs, rather than return to speculative home building. The company does, however, take on-commission jobs, he added, where a buyer comes to the company to have them build a specific house.
The work keeps Java Construction busy, he said, noting that he is at least a month away from taking on any new projects.
“Most everybody like myself is busy,” Hartung said.
Because there are not enough developers and housing supply companies, new homes aren’t coming online fast enough to keep pace with the demand. Similar to Java Construction, the remaining suppliers can’t keep up with the work, which delays the entire building process.
“We are lacking new construction in this town,” said Allison Bartholomew, president of the Greater Louisville Association of Realtors. And “right now, the most difficult problem we see is the lack of inventory we see for first-time homebuyers.”
According to GLAR, there were 4,478 active home listing in the Louisville MLS in November, which is down 21.5 percent from November 2015. In Jefferson County alone, the inventory of homes and condos for sale was 23.6 percent lower than November 2015. Those number includes both existing homes and new construction.
During the recession, people who would have upgraded to a larger or more expensive home decided to stay put in their starter homes, which limits the available inventory for specifically for first-time homebuyers.
Would-be first-time homebuyer are renting apartments in Louisville because they are tired of searching for available houses and being outbid on those that are for sale, Bartholomew said. “The lack of inventory sure is hurting.”
Experts predict a solid year in 2017
National Association of Realtors this month released its updated housing forecast, which predicted that existing-home sales would increase modestly because of increasing mortgage rates and shrinking consumer confidence.
“Some would-be sellers may be reluctant to move up or trade down — especially if they’ve refinanced in recent years,” the association’s chief economist, Lawrence Yun, said in a news release about the findings. “That’s why it’s extremely necessary for homebuilders to step up their production of homes catered to buyers in the affordable price range. Otherwise the nation’s low homeownership rate will struggle to shift higher in 2017.”
For these reasons, experts say, the nation won’t see a banner year in 2017, but the housing market in general is expected to remain strong.
“Everything that I have heard and read seems to imply that 2017 is going to be a great year in real estate,” Bartholomew said. “I think the market is going to open up a little bit.”
Lenders are easing restrictions they placed on mortgages after the housing market crashed, Bartholomew said, and buyers in Jefferson County aren’t finding themselves in the same bidding wars that they faced this past summer.
Some may attribute that to the fact that real estate deals traditionally slow during the winter, but Bartholomew said she’s remained busy throughout early winter as people try to get into a new home while there is less competition and before mortgage rates increase, a result of rising interest rates.
“It hasn’t slowed down,” she said. “I think people are taking advantage of the time. Now is a great time to buy and actually a great time to sell.”
Although Durham expects more new homes to be built in Jefferson County next year, the market faces another potential hurdle, a lack of buildable land. Areas of Jefferson County are starting to get maxed out, but Durham said there is hope. The city is planning to expand its sewer systems out Taylorsville Road past Jeffersontown next year.
“The greatest growth corridor that we are going to see is just outside the Gene Snyder off Taylorsville Road,” he said, adding that the sewer system would open up thousands of acres for potential development.
Conservation subdivisions on the rise
Even so, it is hard to say how many new homes that will end up translating to in the future, especially with the growing popularity of conservation subdivisions. Conservation subdivisions are required to maintain at least 30 percent of the land as green space, which can include streams, wooded areas and other natural features.
Undoubtedly, some of the property would become conservation subdivisions, Durham said, as people will want to live out near the Parklands of Floyds Fork.
In Louisville, Catalpa Farms, an East End conservation subdivision, is a Homearama site for 2017. There also are three conservation subdivision projects passed the Gene Snyder Freeway near McNeely Lake Park in southeast Jefferson County.
“That I think is going to be a real trend that we are going to see here,” Durham said.
The challenge for developers building conservation subdivision, he said, is affordability. Land prices are steep, so developers have to fit more houses on smaller plots of land in order to pay for the undeveloped acreage that make conservation subdivisions so appealing. As homes prices climb higher, the market for them in Jefferson County gets smaller.
While there are homebuilders constructing $700,000 to $1 million homes in Louisville, some developers are trying to keep home prices in the $400,000 range to widen the potential buyer pool.
“You have to make sure you can design a community that people can afford and enjoy,” Durham said.