By Mike Monson
Published March 22,2009 by The News-Gazette.com

New home construction plunged in the Champaign-Urbana area during 2008, but some local builders say they think the worst is over.

Low interest rates, a new $8,000 federal tax credit for first-time homebuyers and some lower-priced home models are attracting potential buyers to open houses – though many are still hesitant to pull the trigger, they say.

Doug Johnson, vice president of Ironwood Builders in Champaign, said his company and Signature Homes of Champaign have been having open houses since mid-January in a number of subdivisions Signature Homes has developed in the area, including the Prairie Fields, Prairie Meadows and Lake Falls subdivisions in Savoy and Ironwood West, Trail's Edge and Will's Trace in Champaign.

Johnson said he's starting to see buyers, having sold nine homes, including four in Prairie Fields, two in Prairie Meadows, two in Mahomet and one in Urbana's Stone Creek neighborhood.

"It seems like after the presidential election, people fell off the fence" and decided to buy, he said.

Prairie Fields in Savoy, where Ironwood and Signature have seven new models priced between $190,000 and $210,000, is drawing particular interest, he said. The model homes are on Dropseed Drive.

The model homes "are still high quality but they have a little smaller square footage, 1,600 to 1,900 square feet instead of 2,300 to 2,500," Johnson said.

The homes offer features like 9-foot-high ceilings, quality cabinets and floor coverings and detailed trim, he said.

Other home builders also report increased interest in new homes, though they say potential buyers are still holding back.

"There's a lot of people out there and the open houses are busy, but they're waiting for a sign things will be OK," said Bill Peifer, co-owner of Signature Homes. "They're looking, but they're not buying."

Peifer said that local home-building has been in a recession for nearly two years and that he believes the inventory of new and existing homes on the market is beginning to approach equilibrium again. Peifer said his company has about eight speculation homes (homes built without a buyer) ready for purchase and has 100 to 120 lots for sale in the subdivisions it has developed.

Mike Martin, director of residential development for The Atkins Group in Urbana, said he's also seeing increased traffic in model homes but still some reticence to buy.

"We're starting to see more traffic now that the weather's breaking," Martin said. "I think we're seeing the first signs of a turnaround."

The Atkins Group has about 25 speculation homes ready for purchase in the Ashland Park subdivision in north Champaign, four homes available in Stone Creek and four homes in Cobble Creek, both in southeast Urbana.

Also optimistic about this year is Kathy Simmons, president of the Champaign County Association of Realtors in Savoy.

"We overbuilt in 2006," she said. "Some of that extra inventory has been slowly getting absorbed by the market. Everybody loves new. If they could afford it, 80 percent would build new."

Simmons said the $8,000 tax credit for first-time buyers, or for previous buyers who haven't owned a home for three years or more, likely will spur sales in the $150,000 to $200,000 segment of the market, which will in turn boost sales of higher-end homes as people move up the housing ladder.

The tax credit is equal to 10 percent of the purchase price of a home, new or resale, up to a maximum of $8,000. The full credit is available for single people with an income up to $75,000 and to married couples with an income up to $150,000. A partial credit is available to people earning up to $20,000 more than those limits.

Other good signs Simmons sees are that the inventory of local homes for sale is 1,597 and interest rates for a 30-year fixed mortgage are between 5 and 5.5 percent for borrowers with good credit. The inventory of homes reached 2,000 last year, she noted. "I think there's a lot of pent-up demand" for new homes, Simmons said.

That definitely wasn't the case in 2008, according to a review of building permits for new homes in Champaign, Urbana, Savoy, Rantoul and Danville. Figures for Mahomet weren't available.

The permits show 2008 was a dismal year for new home construction overall, with the exception of Savoy, which ignored national trends and saw 54 new home starts, eight more than the year before.

Champaign issued building permits for 85 new single-family homes and six duplexes in 2008, about one-fifth of the new homes built in both 2005 and 2006.

So far through February, Champaign has issued 14 permits to build new single-family homes and duplexes – with one official saying that number is too low to get his hopes up for a robust 2009.

"It's still early, but it is certainly a pretty small number before the big construction season," said Bruce Knight, Champaign's planning director.

In Urbana, the city issued 51 permits to construct new single-family homes during 2008, compared with 76 in 2007. Only five permits to build a new home have been issued so far this year.

Prior to 2007, Urbana had five years in a row with more than 100 new homes built.

Libby Tyler, Urbana's director of Community Development Services, said that while Urbana's numbers are down, the city is still seeing more new homes built than was the case during the 1990s. She attributes much of the increase to the Build Urbana program, a property tax rebate program that effectively equalizes the property tax rate between Urbana and Champaign.

Meanwhile, Savoy has seen a steady number of new homes built in recent years, with 54 permits in 2008.

Village Manager Dick Helton said Savoy is being helped now by the homes priced between $180,000 and $210,000 that developers are now offering.

"That's what people are looking for," he said.

The story is less optimistic in Rantoul, where no permits for new homes were issued during 2008 or so far this year, and in Danville, which saw just nine permits for new homes issued last year.