Small businesses in housing industry see recovery

The small businesses that drive the housing market are reporting signs that the industry may be experiencing a real comeback.

At the beginning of the spring selling season, real estate agents and homebuilders were optimistic about the growing number of prospective buyers showing up at open houses and calling to inquire about listings. Now, it appears that interest has translated into sales.

“We had a terrific March, better April, and May is going to be the best closing month since 2006,” says Mark Prather, whose real estate agency, ERA Buy America Real Estate Services is in La Palma, Calif., on the border of Los Angeles and Orange counties. Closings are up 50 percent this year from the same period of 2011.

It's a similar story across the country. Business is being driven by pent-up demand — many people had put off buying since before the recession. Prices are lower after plunging during the housing crisis. Rising rents are making buying more attractive. On top of all of that, financing is cheap. Mortgage rates are at record lows — 3.75 percent for a 30-year fixed mortgage as of last week. In some areas, people are even saying it's becoming a sellers' market.

Industry and government figures confirm that housing is recovering. The National Association of Realtors says more than 1.3 million previously occupied homes were sold from January through April, up 7 percent from more than 1.2 million a year earlier. The Commerce Department says 117,000 new homes were sold during the first four months of the year, up nearly 15 percent from 102,000 a year ago.

But the sales recovery isn't uniform. Although home prices have started to rise in many parts of the country, they're still falling in places like Detroit, Chicago and Atlanta, according to the Standard & Poor's/Case-Shiller home price index for March.

The numbers reflect an improvement from a weak spring in 2011, but isn't yet what you could be considered robust. A Realtors' index that measures the number of home sales contracts fell in April. The spring selling season got an early start because unusually warm weather in January and February encouraged many people to start looking at houses, and that may have taken away some sales from April. But the drop also coincided with signs that the job market was slowing and a decline in the stock market. The Standard & Poor's 500 index fell nearly 1 percent in April, its first month with a loss since November. That may have led some potential buyers to pause. Another wrinkle: fiscal and banking crises in Europe and their potential effect on the global economy.

“You watch the news, the economy is not good, there's negative news about Europe and the global economy,” Prather says.

That caution extends to owners who run companies that serve builders such as Central Reclamation, which performs demolition and has a business drilling into hillsides so that mansions can be built on them. Ron Fox, who runs the company, based in Los Angeles, says he has more work now than he has had for three years. But the increase is coming from the upper end of the price scale, he says. He's not seeing much construction in mid-market single-family homes.

“I'm not trusting it to the point where I'm going out and buying equipment,” says Fox, who also says the high cost of diesel fuel that he needs to run his equipment and trucks is pressuring expenses.

But no matter how cautious owners feel, real changes are afoot. Business has been strong enough in Atlanta that the backlog of homes on the market that resulted from the recession has shrunk dramatically, according to Jim Chapman, a builder there. He has signed sales contracts on 42 homes in the Atlanta area this year after signing just 25 for all of 2011.

“People have waited long enough” and are ready to buy, Chapman says.

The surplus of homes that had been hanging over the industry has been disappearing in many parts of the country, according to Budge Huskey, president of Coldwell Banker Real Estate, which has franchised real estate agencies around the nation. Many houses were bought by investors and first-time buyers. As a result, “we've flipped from a buyers' market to a sellers' market,” Huskey says.

People who come into Rob Foley's agency in Burlington, Vt., are more confident. But buyers are cautious about how much they spend. “What we're not seeing is any real price appreciation,” says Foley, owner of Flat Fee Real Estate.

Still, Foley's business is up about 6 percent from a year ago. The greatest demand is for homes in the middle price range in his area — between $200,000 and $350,000. People trying to sell homes in the $400,000 to $700,000 range are having a harder time.

Even in parts of the country where the economy is troubled, real estate agents are experiencing an improvement. At Tony Geraci's real estate agency in Cleveland, sales are up 25 percent over last year, and he has added about 60 agents to the 175 he already had.

But houses aren't selling unless they're realistically priced. Geraci says the Cleveland area doesn't have the kind of demand for housing that places like Florida and Arizona have. Cleveland has struggled more than other big cities. It was ranked as the third poorest city in the country in a 2011 Census Bureau report.

“There are not too many people moving here,” Geraci says.

Houses that buyers perceive as overpriced can sit unsold indefinitely. Geraci says one condo priced at $279,000 languished for a year. It sold within a day when the price was lowered to $210,000.