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Steamboat Springs — The downward pressure on the prices of existing homes, the cost of undeveloped lots and the difficulty of obtaining financing are the key culprits to what is expected to be a slow construction season across Routt County.

Throughout the first three months of the year, the Routt County Regional Building Department has issued one permit for a single-family home — and it was a living unit above a new garage.

However, there are signs of people interested in building new homes.

Realtor Bo Stempel, of Colorado Group Realty, said this week that he was the listing agent on a building lot in Silver Spur that just sold for $105,000.

“I have four contracts involving cash buyers right now,” Stempel said. “I’ve got another lot in Silver Spur set to sell for a similar price on Tuesday. They all plan to build right away.”

The trick for would-be homebuyers and their contractors is budgeting for a new home that can be built for a price not far from the price of existing homes in a market still seeking the bottom.

The April 4 sale of a well-kept 2,720-square-foot home in Silver Spur serves as a case study. The home sold for $460,000, or $169 per square foot, a cost to build that was unheard of four years ago. When comparing the cost to build a new home to transactions of existing homes, it’s necessary to take into account that land costs are built into sales prices.

If one assigned a land value of $100,000 to the April 4 Silver Spur home sale and subtracted it from the $460,000 sale price, the cost to build was closer to $132 per square foot.

That’s not inconceivable, Craig Brundridge, of Amaron Folkestad construction, said this week.

“We built a high-end modular last year for a client who was willing to put in sweat equity,” Brundridge said. “The price we took to the bank (to support the construction loan) was $110 per square foot.”

The client received his certificate of occupancy in January.

Financing challenges

Brundridge said he thinks it’s less the price of building lots than the challenges of obtaining financing that is congesting the local industry. He said he sought financing to build a new home and put up cash equivalent to three times the loan (he wanted to take advantage of low mortgage rates and conserve working capital), but was turned down for a construction loan.

Of course, that was due in part to the fact that he is self-employed and doesn’t have money from new projects coming in.

Brundridge said he and partner Mark Folkestad were cautious during the real estate and construction boom that held sway in the valley from 2005 to 2007 and avoided taking on spec homes.

“Fortunately, we’ve always acted conservatively. We couldn’t make them pencil out, but we thought maybe we were stupid because everyone else was doing it,” Brundridge said.

Currently, he said, they have a backlog of more than $11 million in projects that can’t get financed, including a home for two married professionals with strong income who already have built a caretaker unit on their lot. The couple can’t get approved for a loan for their permanent home. There’s a local church that wants to build an addition, Brundridge said, but can’t get a loan without individuals in the congregation co-signing on it. And there’s an affluent couple in another ski town that could proceed with their new home in rural Steamboat on a cash basis but don’t want to move forward until they sell an existing high-end home.

Going low

Stempel said the key to putting the two short-sale lots in Silver Spur under contract was getting the bank holding the original notes on the properties to accept a price that would allow the buyers and their contractors to go to their bank and succeed in obtaining a construction loan. To do that, they needed to demonstrate that their proforma, or business plan, would deliver a finished home for a cost that approximates the current selling prices of existing homes. That’s because banks don’t want to assume the risk of taking back a new home that already is overpriced for the market.

“You have to get the land values down so that you can build at a price that meets the existing inventory on the market,” Stempel said. “That’s been the holdup. In the past, the banks were willing to make construction loans without (scrutinizing the cost relative to existing home prices), but they are way on top of it now.”

Realtor Greg Danziger, of Prudential Steamboat Realty, said he has followed the pending contracts for Stempel’s two listings. Within the past two weeks, he listed a choice lot in Silver Spur for sale for $184,900, a price he said is justifiable on a market basis. But he acknowledged it’s a little tough in Silver Spur given the one recent sale and the next pending sale.

“I introduced my listing to the MLS just as the other sale was going to contract,” Danziger said. “But it’s one of the nicest lots on the perimeter at the top of the subdivision. It looks west over open land.”

The lot sold for $271,000 in 2007, at the height of the market.

One of the challenges in the market for building lots in Steamboat, and particularly in Silver Spur, is the cost of holding undeveloped lots. By state law, property taxes are higher on unbuilt lots, and in Silver Spur, which shares a water district with neighboring Steamboat II, property taxes are higher.

Taxes on Danziger’s listing ranged from $4,500 to $5,000 during the past five years.

For that reason, “You’re not as likely to buy unless you’re going to do something immediately,” Danziger said. And to do that, you need to secure financing.

Stempel said that for middle-age buyers who are trying to time the phase of the market and still plan for an active retirement in the mountains, this season, with prevailing low interest rates, the best opportunity to buy may have arrived.

“I do think we’re at or near the bottom,” Stempel said. “For people planning to retire in the next 10 to 15 years, now is the time.”

— To reach Tom Ross, call 970-871-4205 or email tross@SteamboatToday.com