Cautious Optimism Continues

Local professionals talk about the year so far and the year ahead.

Last year about this time, we published our annual “predictions for the year ahead” story with perspectives from several developers in the Des Moines metro area (see BUILD Des Moines, January 2020). No one predicted that, just a few weeks later, the country—and the world—would be in lockdown due to a worldwide pandemic.

Just as surprising, last year’s predictions weren’t far off the mark, despite the roller-coaster ride of the past 12 months. Here’s what some local professionals have to say about getting through 2020.

Lots and land

Although many builders had predicted that lot availability would continue to be a problem in 2020, few expected the boom that’s taken place over the past nine months. Early in the spring, as builders would normally have been ramping up their projects, the coronavirus quarantine seemed to warn of dark days ahead.

“Nobody thought at that point that the strong start to the year would hang on,” says Eric Grubb of Solid Ground in Clive. “But the market got even better.”

Kimberley Development’s Jenna Kimberley says, “We still don’t have enough lots to meet the demand. I think the last forecast I read indicated that we were about 2,000 units short [by early October].”

Hubbell’s Rachel Flint says, “Honestly, the market is really good right now. The Des Moines area is fortunate because most communities are not locked in. They have room to grow if sellers aren’t holding on [to their outlying land].”

The hot market in Des Moines does mean lots seem always to be in greater demand than inventory, and the unpredictable economic situation this year hasn’t changed that. “All of a sudden, bulk sales are going strong,” says Kalen Ludwig of Peoples Company. “Momentum is growing as interest grows from buyers wanting to relocate to Iowa.”

In fact, Ludwig says activity at Peoples Company didn’t slow down at all despite the restrictions from the virus. “Unlike some others, we didn’t slow down development plans,” she says. The company kept a close eye on the market and buyer activity and continued with its original forecast. “There’s so much activity right now, especially in communities like Norwalk and Indianola.”

Accurate Development’s Kevin Johnson says, “With interest rates so low, sales are good at all price ranges. At this point, everyone is rushing to get lots in the ground that they’d put off earlier in the year.”

Corona effects

The virus may not have slowed home sales, but its effects have been felt in the construction industry nonetheless.

“Supply chain issues are 10 times worse than expected,” Johnson says. Last spring, he predicted that builders would soon have issues obtaining product as a result of factory shutdowns and trade barriers. “Everything is affected. Lumber, appliances, siding, nails, interior doors—it’s at the point that we have to have homeowners’ final selections on everything when we start framing.”

Flint says one of the difficulties with the supply issues is how far-reaching they are.

“Anything manufactured was hit by COVID with supply chain issues,” she says. “It’s industrywide, but it’s sporadic,” so scheduling and predicting lead times is a moving target.

Kimberley says the construction industry has certainly been affected by these delays, although supply concerns have been less of an issue on the development side. “We’re definitely seeing effects from COVID,” she says. “The typical development timeline is getting longer because it’s harder to get paperwork done and get approvals and appointments with city reps.”

Ludwig says, “During the slight slowdown early in the spring, home prices were a little more competitive. But when the market stayed strong, and everyone knew lumber prices were going to go up, some builders started including that margin already.”

Since then, home prices have risen slightly, according to Grubb. “Lot and land pricing are about the same, but homes are starting to go up,” he says. “Especially with lumber prices rising,” builders are starting to take that into account.

With interest rates as low as they are, and no indication that they’ll rise in the immediate future, area builders and developers say prices will remain strong.

Looking ahead

Each of the professionals we spoke to was cautiously optimistic about the coming year. “Cautious” is the operative word.

“There’s always uncertainty with an election year,” Kimberley says. “But in the near term, things are really better than we would have expected nine months ago. Compared to this time last year, Kimberley Development has almost double the closings.” She adds that the company has diversified its offerings in the past couple of years, which helped put it in a position to weather this year’s uncertainty. And the “crazy sales” have made for a strong year overall.

Grubb agrees. “We’re happy with where we’re ending the year, especially in light of what everyone thought when the quarantine first happened.”

“Our 2020 results for Accurate are right on target, especially based on predictions in the spring,” says Johnson. “We didn’t put a lot of inventory in the ground, but we’ve sold out. Things have been hot enough we sold our model home.”

Ludwig says Groundbreaker Homes has seen outstanding sales this year as well. “We typically sell about 15 homes a year. We had 30 pending or sold homes by the end of October,” she says. “We were ramping up our projects already, but the market has been strong and helped us with that.”

Flint says the lower price point homes remain in demand and will continue strong in 2021. “The single-family home market under $280,000 is still in higher demand and may be even more in the year ahead if supply issues remain a concern,” she says.

“Predictions are always difficult, but that’s especially true this year. If rates are low and construction costs level out, 2021 could be a good year. If that doesn’t happen, it’s anybody’s guess,” Grubb says.

Johnson says interest rates will be the real indicator. “If rates stay below 3%, there’s no reason for the market to slow. If they get as high as 6%, that’s a different story.”

“I’m not nervous for the next few years,” Ludwig concludes. “But in five to seven years, what if interest rates rise? All these buyers who are able to get into homes now, when they’re ready to move up, will they be able to afford it?”

These professionals are facing the year ahead with optimism. But whatever 2021 holds, it’s the “cautious” in their optimism that will continue to get them through it.