Big commercial projects have propped up construction-sector volume here during the first four months of this year, despite a drop in building permits for new homes to a level not seen since 2001.


Total permit valuations, including those for both commercial and residential projects, as well as for remodels and additions, are up 7.2 percent through April, compared with the same period last year. Total permit values reported by Spokane County and the cities of Spokane and Spokane Valley were $225.1 million for the first four months of the year, compared with $209.9 million a year earlier.


That modest climb has come despite a 46 percent fall in permit valuations for new single-family homes in those jurisdictions, to $50.9 million from $94.3 million in the year-earlier period.


Big projects have been the biggest factor in the sector increase, says Sean Shields, Spokanes permit coordinator.


Weve issued more permits for multimillion-dollar jobs in the first four months of this year than in the same time frame last year, Shields says.


He says, however, that no single permits have been issued on the scale of last years permitting of the $74 million Shadle Park High School renovation or the 2006 permitting of the $65 million Rogers High School remodel and expansion.


The largest project permitted by the city so far this year has been the $12.6 million YMCA-YWCA Central facility thats under construction at 930 N. Monroe.


Shields says he expects the citys total construction volume for the year to be comparable to 2007s volume of $315.5 million, but believes it will most likely be less than in 2005, when the total volume was $407.9 million.


Projects with a total estimated value of more than $30 million were under plan review as of the end of April, including the planned $8.2 million WinCo Foods Inc. grocery store on Spokanes North Side, Shields says.


On top of that, the city is expecting to receive permit applications for public pools and parks projects valued at $44.1 million.


Slowdown could come


Marshall Clark, president of Clark Pacific Real Estate Co., of Spokane, says Spokane is doing well right now, but a slowdown in commercial development may be inevitable.


The decision level is slowing, he says. Were not selling and leasing at the same pace as we did previously.


Still, Clark says, some developers, including some of his clients, are rushing to submit building-permit applications before the city of Spokane proceeds with proposed traffic impact fees.


We are applying for permits for some projects, but wont build them until we get pre-lease agreements from property users, he says.


The proposed traffic impact fees would be intended to raise funds to pay for transportation projects that would serve potential development, but Clark contends the fees would put too much of the financial burden on developers and kill potential projects. The Spokane Plan Commission is reviewing the proposed fees and is expected to forward its recommendations to the City Council in coming weeks.


Spokane isnt completely immune from the real estate woes being experienced in other parts of the country, Clark says.


A lot of our money comes from other states, he says. If California is hurt, were going to be hurt. We cant take that away and say its not going to affect us.


Home construction


The Spokane-area housing sector already is showing signs of distress, evidenced by the precipitous drop in housing starts here.


In Spokane alone, valuations of single-family home permits for the first four months of the year totaled $13.6 million, the lowest volume for that period in seven years.


Brett Sullivan, president of the Spokane Home Builders Association, says builders here are being careful not to add to the new-home inventory, and construction lenders have tightened their credit policies. Those factors are leading to a decrease in residential building permits, he says.


Potential home buyers also are being more cautious, due to their perceptions of excess inventory and fear of an economic downturn, says Sullivan, who also is a co-owner of Camden Homes and vice president of Sullivan Homes.


Despite the slowdown, the outlook for builders and buyers isnt entirely bleak, he says.


This market doesnt have a huge amount of excess inventory, Sullivan says. Interest rates on mortgages are still favorable for a large number of buyers.


One residential developer that hasnt pulled back is Greenstone Corp., of Liberty Lake, which currently has 125 houses under construction and has sold 75 homes since the beginning of the year, says Jim Frank, Greenstones CEO.


We build in the heart of the market, and have never moved to high-end, luxury homes, he says.


Greenstones median price for a new home is $190,000, Frank says.


A lot of whats driving the bubble is people overreaching and buying what they cant afford, he says.


Frank, however, is concerned about interest rates, which he asserts are bound to rise over the next few years.


An increase of 200 basis points in bond rates could move mortgage rates up to 8 percent, he says. That will eliminate a large number of potential customers. An increase of 200 basis points is equivalent to 2 percent.


Frank says Greenstone discourages speculative buying by selling homes to buyers who sign an agreement that they will live there rather than to buyers who purchase homes to derive rental income or make short-term real estate investments.


Steve Huettl, president of Camden Homes, of Spokane Valley, says he believes that the slowdown in demand for new homes is partly due to extensive national publicity over downturns in other parts of the country, rather than market conditions here.


This is the first time that I can remember the psyche of the market being so fragile, he says.


Partly because few subprime loans have been issued here, the Spokane area isnt affected as much by the subprime lending crisis as other U.S. markets have been, Huettl contends.


Foreclosure rates here are comparatively low and will remain low, he says. Spokane is still in decent shape.


Huettl, who also is an operations manager with Sullivan Homes Inc., of Spokane Valley, says that because of the softening housing market, Camden wont build many homes on speculation.


Huettl, Sullivan, and another manager at Sullivan Homes Inc., of Spokane Valley, recently formed Camden Homes, and Sullivan Homes has stopped taking on new projects so its owner, Jim Sullivan, can retire.


Sullivan Homes, which obtained 74 building permits for single family homes countywide in 2007, and 101 permits in 2006, was one of the perennial top home builders in the Inland Northwest.


Camden Homes, by comparison, plans to build only 15 to 30 homes a year, Huettl says.


Hes not expecting to see steep discounts in the prices of new homes already on the market.


Now, we have a supply, but costs are not going down, and thats a problem, Huettl says. The complexities of this downturn are different than any other downturn the industry has seen in a long time.


Contact Mike McLean at (509) 344-1266 or via e-mail at mikem@spokanejournal.com.