Five years ago The Bailey Company built new houses or commercial structures almost exclusively, with virtually no remodeling; today remodeling accounts for 95 percent of its business.
The reason for this complete reversal? The firm had to adjust to the dismal housing market as more Americans have turned to remodeling instead of buying new homes.
Other builders have responded the same way, said Matt Bailey, owner of The Bailey Company and president of the Home Builders Association of Greater Springfield. The company has a Rogersville address, but actually is located in the city of Springfield.
The “new normal” is that there aren’t very many new houses being built. Instead, more homeowners are remodeling their current houses, and still others are renting space instead of buying.
“I hear a lot of people saying, ‘When we get back to normal,’” Bailey said. “I think one way to help us survive is to believe this is the new normal, whether we like it or not.”
Bailey emphasized that this is not the first time the housing industry has been in crisis mode. His father, Howard Bailey, who founded the company in 1972, faced tough times from 1979-81 when interest rates typically were in double digits. Howard was president of the HBA in 1989-90.
Predictions as to when the housing industry will get back to normal - say, to 2006 levels - keep getting moved back. Reportedly the year 2015 is the year some socalled experts are now looking at. But Bailey stressed that the HBA’s economist is saying that while the housing situation will improve, it’s going to be a slow climb and that 2017 or 2018 may be the “back-to-normal” year.
“When we get out of this, we will be smarter,” Bailey said. “In the past I think there was some foolishness regarding how we built and where we built. Today we must be financially sound and our customers need to be financially sound.”
Great time to build
For those who can afford it, though, right now is a great time to build a house, according to Bailey. Some materials are high right now because of lack of inventory, others have stayed the same and still others have gone down.
The price of lumber fluctuates daily. But interest rates have remained low, and the Federal Reserve has pledged to keep them low through 2012. Bailey stressed that labor costs are lower than he’s ever seen them.
“Of the three costs, two out of three - interest rates and labor - are probably as low as they are going to be, and one isn’t,” he said. “So when times get better, all three will increase.”
When approached by consumers, Bailey tells them it’s a great time to buy or build, but he urges them to “make sure they are comfortable with their job.”
Indeed, lack of a job or the lack of job security are the top reasons people decide not to buy a house.
Top trends in houses
Increased energy efficiency is the most prevalent trend, both in new houses and remodels. This includes improved lighting and insulation, more energy-efficient appliances and better sealing and framing techniques.
“In every way you build, there are a few little tweaks you can do to make it more energy efficient,” he said. “It takes time, and it costs a little more because there is more labor involved in almost all of it. You don’t get much more cost until you start looking at the difference in fiberglass versus spray foam, and more expensive light bulbs.”
In remodeling, people also are redoing closets, trying to get more out of the space they have. They are upgrading their heating and air conditioning systems, and a lot of people are switching to geothermal.
More smaller homes?
Some reports indicate that many “Baby Boomers” are building smaller houses, and Bailey said there is some truth to it. “Some people are realizing they don’t need the size of home they did before,” he said. “But they may be ugrading what is in the house. They might say, ‘We don’t need as much money for food, so we will spend it on things we want, whether it be home entertainment, electronics or more efficient appliances.”
Bailey added that an increasing number of “empty nesters” or elderly are also looking at condominiums. They are tired of taking care of their yards, and the condos are taken care of by the owners, who have a maintenance staff.
The Bailey Company has never constructed condos in the past, but has a few planned for the near future. Multiple-family construction also is on the increase, as many opt for apartment living instead of buying a house. Financing is good for this type of construction, Bailey said.
“More people are renting than buying, and I think that trend will continue,” he said. “It (the trend) will stop some day, but right now people are trending toward apartments because they don’t want to buy right now or can’t buy right now - they can’t get the financing.”
The Bailey Company has done a good job of adjusting to the new market, and its challenge will be to continue to do so.