What’s ahead in 2007
Cape Business met with its panel of home builders and suppliers to gauge their mood about the housing economy and to hear their predictions for the year. We hope this report provides guidance to you as you build and protect your real estate investment on Cape Cod.
Our panel:
Thomas Capizzi Jr., Capizzi Home Improvement, Cotuit
Michael Cole, Cape Associates, Eastham and Barnstable
George Davis, George Davis Builders, South Dennis
Chuck Deluga, Betterwood Homes, Inc., Dennis
Todd LaBarge, LaBarge Contracting and Engineering, West Harwich
Robert McPhee, McPhee Associates Inc., East Dennis
Rob Padgett, Padgett Builders, Cotuit
Peter Polhemus, Polhemus Savery and DaSilva Architects, Chatham and Osterville
Tony Shepley, Shepley Wood Products, Hyannis
The economic trends
• A clear downturn, but still busy at the high end
• Less speculation; more custom remodeling and home improvements
• Boomers and second-home owners will continue to move here
• A breather in home-price increases may not be so bad after all
• Despite the slowdown, builders see the Cape as a strong market over time because of retirees and baby boomers moving here
• Despite less open land, construction will be strong because of Chapter 40B and trends toward clustered building and smart growth
McPhee: The economy is strong, interest rates still are favorable. I feel the slowdown is a natural part of the business cycle after a great 12-year run.
Cole: We still find ourselves very busy, but it is partly due to diversifying into remodeling, renovations and home maintenance.
Capizzi: Our business is 60 percent home improvement – roofing, siding, doors, windows – and 40 percent remodeling like room additions, kitchens and baths. There appears to be a good deal of pent-up demand. It may be that the consumer has absorbed all the bad news and is ready to spend for their home again.
LaBarge: I notice that a lot of our customers are asking us to maintain the work we’ve done. Especially second-home owners. They feel they have a relationship with us.
Polhemus: We encounter many boomers who are about to retire, as well as high-end second-home owners. I think there will be continued demand from both groups. In Chatham and Osterville, I have not seen any slowdown. Chatham has become a destination; people from England, California and different parts of the country – CEOs and CFOs of large companies – are choosing to be in these two communities. Because supply is not great, this demand should keep the high-end market strong for the next five to 10 years.
Deluga: Our clients are primarily vacation buyers and retirees who will continue to move to the Cape for many years to come. The current market downturn should be short lived. Interest rates are still low. The high-end buyers continue to spend on new homes and renovations. The two upsides to the market slowdown are that the construction labor costs are more competitive. It also gives the first-time homebuyers a better opportunity to own a home. Our construction volume is about 60 percent remodeling and 40 percent new home construction. Many of the new homes have been and will continue to be tear-downs due to the land depletion.
McPhee: This is the fourth major business cycle we have entered in my 30 years in the business. The difference this time around is that there is far less speculation. So people are not panicking. They don’t have to sell their homes. They can be patient and wait for the market to correct.
Shepley: People want to buy. They just don’t know when to buy. Their biggest fear is being embarrassed because they bought too high. Today, their neighbors can go online and see exactly what a house sold for. It’s become a very public experience.
LaBarge: The quality of homes and homeowners both have improved. Buyers don’t want something thrown together. They are getting involved, not just with the kitchen and the glitz, but with the entire construction; what kind of insulation to use, the home’s energy efficiency.
Shepley: In some ways, we have needed a breather. Prices have been pumped up so fast. This is a time to take a step back. We’ve just gone through about 15 years of price increases. It’s had become like a pressure cooker. Some kind of moderate pace makes sense for most of us. We have gotten spoiled through what had become almost a housing frenzy.
What customers want
• Outdoor amenities – pools, hot tubs, patios and fire pits
• Home offices – sometimes one for each person
• More time to enjoy the Cape; less time to maintain their home
• Wiring for the Internet generation, including remote home automation
• Landscaping and underground irrigation
• Environmentally conscious construction and materials
• Accessibility: Showers instead of bathtubs; laundry on first floor
McPhee: Those moving to the Cape now are accustomed to their space. They want to have room for their children and grandchildren. When we get into kitchens and appliances, they want the most modern equipment, as well as home theaters and wireless technology.
Padgett: Boomers want more time and less maintenance. They want higher-end finishes in the interior that don’t need a lot of care. They want acrylic showers and PVC trim rather than wood.
Cole: We are meeting many recently retired people who want to expand their new homes here. Often, it is to accommodate the grandchildren. But increasingly it is to build a home office. One couple both wanted their own offices because they did not want to entirely retire. Each needed a place for his and her computers.
McPhee: Home offices are very big. Most of the homes we build will have a study or home office; in some cases, two. Also, customers are asking for generators to be built into the home in the wake of so much bad weather and lost power. It’s not a cheap item, but they want that security and will pay for it.
Shepley: We sell a lot of PVC trim and fiber-cement siding. Both don’t require lots of attention and maintenance. There’s a lot less painting and replacement involved. PVC can replace wood in nearly any non-load-bearing application and can be cut and shaped with standard woodworking tools. It is essentially maintenance free – indoors or out – and is resistant to moisture, rot and insect infestation, including termites and carpenter ants. And unlike wood or engineered trim, it can be placed directly on masonry or on the building grade.
LeBarge: Today’s products are not just maintenance free, but they don’t sacrifice look. On the other hand, we have lots of customers who value their time, but are willing to pay us to do the maintenance.
Deluga: The construction industry has and will continue to change rapidly with regard to the new products brought to market. At some point in the not-so-distant future, wood on the exterior of our homes will become obsolete. Fiberglass, rubber, plastics and composite materials are the way of the future. Even the wood on the interior is being replaced with composites, plaster and fiberglass. We recently built a home in Chatham on the water with all plastic trim, composite decking and even the wood roof shingles were treated for added longevity. The owners also installed a geothermal heating and cooling system. They are very proud of the energy-efficiency of their home and low use of fuel and electricity to heat and cool their home. They even use the groundwater to heat the pool. Last year I visited several new homes being constructed in Vail, Colorado. It’s amazing to see how far behind the curve we are with designs and new product placements.
LaBarge: I usually have several meetings with my customers. They actually talk about social responsibility. They know that the most efficient heating system will be defeated if the insulation isn’t as good as it can be. Many want to insulate with spray foam and not fiberglass. I am building concrete houses insulated up to the room with foam. The up-front costs are high, but homeowners are amazed at the house’s quietness and air quality.
Polhemus: We are building a home in Chatham that is LEED-certified (Leadership in Energy and Environmental Design). They care about the amount of energy used to produce the materials for their home. We will be reclaiming rainwater for the irrigation sprinkler system. They are very committed. They are willing to pay more for a project, and they want to inform other people about the practices. It’s not a decision made just by the return on their investment. It is based also on their concern for the environment.
Polhemus: Photovoltaics will become more mainstream and less expensive. MIT developed this technology 30 years ago, but it was too expensive then. Now, it is being used efficiently.
Capizzi: People are placing more emphasis on quality, even for smaller projects. Real estate is seen as a major investment. They also want to leave their home for future generations. We educate the consumer. When you do an upgrade or remodel, we try to educate them. If they are not in for a quick flip, but plan to own the house for at least several years, it still is worth investing in the home. If they put $100,000 into remodeling now, that investment likely will grow to be worth $200,000 in 10 years. Generally real estate doubles in 10 years with moderate growth.
Davis: They want accessibility; wider doors; showers instead of tubs; the laundry room on first floor.
Cole: Our market is heavily skewed toward couples retiring here. They want a house for three generations for two weeks out of 52. They want spaces for adult children. They are fastest-growing Internet segment, so they want a completely wired home.
Housing costs and building regulations
• Sticker shock; double the bill from five years ago
• The good news: Commodity prices have slackened
• Septic system regulations don’t reflect today’s realities
• Insurance companies are driving the cost of construction
• Spend wisely to storm-proof your home; save money later
Padgett: Finishing a basement was $15,000 five years ago; now it can reach $30,000 for the same job. Family rooms today come in at $60,000 to remodel; some go as high as $120,000 grand. That is almost what they paid for their original house.
McPhee: There are a tremendous number of homes built in the 1980s that now are in need of attention – renovations, remodeling and partial demolitions. In the last year, we tore down about five homes and some others should have been torn down.
Shepley: Building codes and insurance companies are driving consumers to spend on materials to protect against storms and hurricanes – impact glass, shutters. Your insurance rates will go up even higher and faster without these kinds of protective products. From a remodeling standpoint, this is a sleeping giant.
Deluga: The cost of new construction is extremely high. This is partly what is driving the remodeling industry. Those looking to purchase or build a new home are discouraged with what it costs. They are opting to purchase an existing home and renovate. People who would like to upgrade their home are staying where they are and adding on or renovating. Many owners of waterfront properties are spending money to secure their homes and protect their investment. I don’t see too much of this on homes not directly on the waterfront. With regard to septic regulations, this should have been addressed many years ago with the installation of a regional septic treatment facility for the entire Cape. If you took the amount of money spent over the past 20 years upgrading private septic systems, you probably wouldn’t be too far away from what it would have cost to fix the problem originally.
Shepley: We could not take vitamins and live long enough for the payback on these materials and storm protection construction. But people will spend the money to protect their nest. It means more portable generators, impact glass, shutters.
LaBarge: I am seeing that a lot of people asking for concrete forms – mainly because insurance companies are driving decisions about structures. If I spend a lot of money on an expensive house, I don’t want a storm to take it down.
Polhemus: Title V septic requirements are not keeping up with the times. They were developed to accommodate homes with year-round families. But they stifle the ability to construct sufficient rooms for today’s retired and empty nest customer. Even if you have six bedrooms, most of them are used only two weeks a year. Title V also figures than any room designed as a home office, home theater or library is a bedroom. Even when the Title V law permits more rooms, most local towns don’t permit it.
McPhee: Many people who live in homes built in the 1970s and 1980s want to upgrade, but don’t want to move away from their neighborhood and friends. In some cases, they will want to tear down their current structure and build a new home because they recognize they cannot duplicate their location. The property’s value has risen primarily because of the land value, which can justify essentially consuming the original cost of the structure and replacing it in place. This is not an answer for everyone, but for some, it should be explored.
Shepley: Too many people are opposed to second-home owners, but they represent the Cape’s gravy train. They are assuming a disproportionate financial burden for government. And many of them are spending more of their time here and spending more of their money here.
Landscaping mania
• The number of landscapers has more than doubled in the last 10 years
• Landscaping bills equal the cost of a house a decade ago
• People want to garden, but not mow their lawns
• Homebuilders are diversifying into landscaping
• With property costing so much, people want to maximize their investment
• The big question: Where will we find the landscape workers?
McPhee: Today, landscaping is recognized as a major feature of the house. It’s design, colors and landscaping. It’s curb appeal. We have always included brick walks and irrigation systems as a matter of course. Today, people want accessories such as fencing and landscape lighting. It is a very significant part of every project. The landscaping bill can reach $100,000 on homes of $1 million to $1.6 million.
Polhemus: We actually have a landscape architect involved in almost all our projects. Landscaping budgets now are what entire homes used to cost. It’s a huge business. As an architect, I totally agree that well-done landscaping can fundamentally change the whole feel of a home.
LaBarge: Landscaping equates to maximizing outdoor living space, and this is particularly critical when people are spending so much more money today on land. Swimming pools and patios are big because they don’t fall within guise of building codes. You can expand the home’s footprint for actual living space.
LaBarge: Swimming pools are huge. People see the comfort of a pool. They don’t want to wait in line for beach parking lot. It allows them to stay at the pool in the morning and then go to the beach in the afternoon when the crowds are smaller. I now see pools in the same way I do sprinkler systems for grass.
Deluga: The landscape trend is finally starting to reach us here on the Cape. I was recently on the West Coast, where many of the homes are making the rear patios and yards an extension of the kitchen. Installation of outdoor fireplaces, gas firepits, wet bars and cooking/grill areas are very common. We certainly are seeing a big increase in the spending on landscaping here on the Cape. Curb appeal is a big part of real estate value.
LaBarge: We are installing energy-efficient pools with concrete forms and insulation. Then, after the pool is installed, we truck cedars and plants and build patios. People are spending on pools and related landscaping what they once built homes for.
New ways to serve customers
• With more competition, many builders are becoming full-service companies
• Many develop long-term relationships with their customers, especially second-home owners
• Small projects can quickly lead to additional, bigger ones – treat them all the same
• The emphasis is on customer service and trust
• Customers want to be far more involved in all aspects of the project
• Changing times require constant reevaluation of the business model
Cole: Decades ago, our businesses were exclusively custom building. Not now. We must also move into services for our homebuilding customers – remodeling, even concierge services. There is more competition in the market. Meanwhile, customers are asking you to service and maintain their homes. We are finding seven-figure remodeling jobs these days.
Padgett: Customers require far more professionalism and business integrity. They are much more demanding than in the past. We have to be more sophisticated to be competitive.
LaBarge: One customer called for a concrete pad for her hot tub. It was a small job, but the next thing I knew I was building her stairs to the hot tub, then $250,000 for a major addition. By not treating the first job as too small, I was able to build a long-term relationship and get a much larger job.
Cole: We have learned that maintaining homes for our customers is critical. We want to have the same relationship with a customer as we do with our employees. We have many stories of small projects blossoming into bigger ones. Not only does that work come from the customer, but that small job done well feeds word of mouth. One of best things we did was a start a quarterly newsletter to all our customers – past and present. It keeps our name in front of the customer.
Polhemus: We are conducting off-site meetings with six key people in the company and looking at every single aspect of what we do: construction, design, marketing. What can we do to make it better? It’s almost like starting over again. It’s easy to get complacent about how to do things. Frankly, we are extremely busy right now. But it is critical to reevaluate who you are and what you do. We also must be sure everyone in our company knows about our values. Even if it is in our handbook, we must communicate over and over again: Who you are and what you can do better.
Cole: There are a lot of retirees or soon-to-be-retired boomers who still want to live here. They are generally not dependent on interest rates or high inventories. That should help in the near term. The other market involves those who own homes that have matured and need some maintenance now. ‘Mike, Can you come look at the roof?’ This replacement work will be significant.
Deluga: We are currently in the process of starting a concierge service branch of our company. We have always provided home maintenance services for our own new home clients and remodeling clients. Our clients will periodically ask us to do small projects and check on their homes, especially after storms. The big difference with the concierge service business is marketing to attract new clients we have not worked with in the past, and also the wider range of services that we will be offering.
McPhee: People whom we build houses for are part of an extended family. You build a house, you build relationships. Follow-up is so important.
Originally published in the March/April 2007 issue of Cape Business.
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