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You might hear less noise from nail guns and circular saws this year as residential construction slows down in Central Iowa. “I’m guessing between 10 and 20 percent” fewer homes will be built in 2008 compared with last year, said Hubbell Realty Co. president and CEO Rick Tollakson.

“My theory is that there are a couple of very large builders that maybe have some issues on the financing side about how many spec (speculative) homes they can build right now,” Tollakson said. “It’s the same thing with smaller builders. Financing for spec homes has become a major concern for some builders. This market is used to building spec homes, but because of the financing pullback, it’s more difficult to do.”

Across the United States, lenders that had approved loans to home buyers with no money down and modest qualifying standards are now putting stiffer requirements back in place. At the same time, some people in the housing field are predicting that prices could drop 25 percent from today’s levels.

However, even as oversold markets have collapsed in areas such as Florida, California and various big cities, the Central Iowa housing market has remained relatively stable. The inventory of unsold homes has risen, however, and the average sale price declined last fall.

“We’ve seen some impact on smaller builders, who represent 60-70 percent of the local market,” Tollakson said. “Some have had to delay purchasing agreements or cancel them, because they can’t get financing. We started seeing the impact late last fall.”

At Kimberley Development Corp. in Ankeny, “we’re thinking we’ll see a little bit of a slowdown; there are already quite a few builders that aren’t building anymore,” said Vice President Justin Bauer. “Things were so hot the last few years, anybody could go out and put up a house and make some money. We’re getting those onesie-twosie guys out.”

Foreclosures also are rising in Greater Des Moines, and that trend is starting to have an effect on builders and buyers, Bauer said. “Our biggest competition is dealing with the foreclosures, although I don’t think (the foreclosure situation) is as bad as the media are making it out to be,” he said. Potential new-home buyers now have more foreclosed homes to consider as purchases than ever before, and those homes typically come with a slashed price tag. “Banks offer a deal on foreclosed homes,” Bauer said, “but our biggest selling point is, do you want to get a deal and not have a warranty?”

Building in bunches

Residential developments, both planned and under construction, dot the Central Iowa map, and it remains to be seen how credit problems and changing demand will affect their progress. Regency Homes expects to sell 500 homes across Iowa this year, according to Senior Vice President of Operations Alan Sprinkle, or about the same number as in 2007. Not all of the company’s 45 developments will advance equally, however, and Sprinkle said the greatest activity has been in high-end homes, those priced at $450,000 and up.

“The dilemma for a lot of buyers is that they’re ready to move up, but selling their current home is taking longer,” Sprinkle said. The sizable inventory of homes on the market plays a part, and so do the new rules of borrowing. Nationally, banks are demanding higher credit scores and more money down, “and that affects banks that do business here,” he said.

Although much of the “no money down” lending has disappeared, Sprinkle said, “there are still lots of opportunities, depending on the buyer, for 100 percent financing.”

The changes in the housing market have pushed Knapp Properties Inc.’s planned Southern Ridge development on the south edge of Des Moines to a wait-and-see phase.

“We’re talking to several builders right now about perhaps buying lots as we develop the site,” said Gerry Neugent, president of the company. “Barring a presale like that, we probably won’t do anything on a large scale this year.”

Considering the current backlog of houses, Neugent said, it doesn’t seem like a good time to build a substantial number of spec homes. “We have done some small developments in Polk City and Pleasant Hill where the lots are selling at a pretty good clip, but not as fast as we would like,” he said. “Our outlook is that there’s still a lot of inventory that needs to get absorbed before new development is brought forward.”

Neugent said he expects the inventory problem to clear up this year.

The bright side

Builders that didn’t overextend themselves during the recent boom years might benefit from a strong labor pool to draw from and a slightly smaller number of competitors. “There’s less competition out there right now,” Bauer said. “A lot of these builders aren’t able to pay some of their bills.”

He said, “It was very slow from September through January, but the last three or four weeks I’ve seen a lot of interest.”

“We’ve been getting more and more phone calls,” said Tom Gratias, president of Gratias Construction Co. in Clive. “Hopefully, I think things are going to get a little better. We were down last year, but we had record years in 2004, 2005 and 2006, and you can’t keep records going forever.”

With low interest rates and competitive prices, Gratias said, “it probably doesn’t get any better than this. It all adds up to being favorable for the buyer.”

“We’re still seeing pretty good sales; we had a record January,” said Tollakson, who spoke on “How We Survived the Slowdown and Still Made a Profit” at this month’s International Builders Show in Orlando, Fla.

But there’s always one factor that no Iowa builder can control. Tollakson said, “It kills you when you have a blizzard on open-house Sunday.”