Local housing starts were down for the first half of 2017, and some local builders blame historically low appraisal values for new homes built in the city.
“You can build in Madison or even in Limestone and get an appraisal of $125 or $130 per square foot, no problem. Not the case in Decatur," local homebuilder Frank Pate said. "Sometimes it’s not even $100 a square foot.”
Add to that more stringent subdivision standards and building codes that require more energy-efficient homes, and it’s enough to scare many builders off, according to Pate and some local development officials.
“If you can build a home and get $20,000 more for it in another county as opposed to here, that’s a little bit of a deterrent,” said Crystal Brown, vice president of business and investor development for the Decatur-Morgan County Chamber of Commerce.
Officials blame the disparity on a homebuilding market that was particularly hard hit when the housing bubble burst and since has been slow to recover.
According to Pate, construction of new homes simply stopped, and many homes that did sell went for less than they cost to build, setting a market value that skewed appraisal values downward.
With few new houses on the market, those numbers have been slow to recover, officials say.
“Our dilemma has been we’re just not building enough, selling enough, remodeling enough to have a real active market,” said Decatur Development Director Wally Terry.
With fewer new houses on the market, Terry and other officials said the issue is hindering efforts to grow the city’s population.
“If you got a men’s clothing store, and there’s only two suits hanging on the wall, you’re probably going to go to another store,” he said.
In an effort to address the disparity, the Greater Morgan County Builders Association today is hosting a seminar on the home appraisal process.
The seven-hour course is designed for builders, Realtors, appraisers, bankers, lawyers and community leaders.
Kelly Pate, executive officer of the Greater Morgan County Home Builders Association, and wife of Frank Pate, said there seemed to be a disconnect between the various groups, all of whom have a stake in seeing more homes built in Decatur.
“Everybody wants Decatur to do better. We need to be where Madison and Limestone counties are,” she said.
In particular, Brown said it would cover how appraisers can look to home sales in other communities such as Madison or Huntsville when no comparable properties are available in Decatur to set market values.
Terry said it also would cover how to value energy-efficient homes that don’t get extra value and how to account for custom-built homes that never get counted in the housing market because they’re built for a particular buyer.
But that may not be enough to boost appraisal values for new Decatur homes, according to one local appraiser.
Jerry Pearson said the job of the appraiser is really to tell lenders what a home would be worth on the market in the event the buyer defaults on the loan.
While appraisers can look to other communities to find comparable market prices, they are not permitted to skip over local comparable properties to get to a higher price, he said.
In some cases, that can leave small sample sizes that are subject to more fluctuations.
When pricing homes in Madison, Pearson said he can search for comparable sales within a mile radius and typically find about 50. In Decatur, he said, it can be as few as three.
“Builders don’t understand that cost doesn’t create value. Markets create value,” he said. “We don’t tell you what a home is worth. We tell you what the market says it will bring.”
As of Monday, Frank Pate said he wasn’t aware of any speculation houses available for sale in Decatur, meaning most builders still are not willing to risk building in the city unless they have a buyer already lined up.
“Builders are afraid to take that risk,” he said, pointing out that, without an appraisal value adequate to cover the cost of building, homebuyers can’t get bank loans to purchase the home.
According to the Alabama Center for Real Estate, new housing starts in Decatur were down to 29 during the first half of 2017 compared to 45 during the same period in 2016.
Noting increased home sales overall, a decline in available housing stock, and a slight increase in home sale prices over the prior year, Pate predicted home construction in Decatur soon would start improving.
He also said a rule change to be considered by the Alabama Real Estate Appraisal Board that would require appraisers to factor construction costs into appraisals could help.
“I think it’s going to be like turning on a switch,” he said of the local building market.