Construction prospects look strong in 2006

With a solid 2005 behind them, local residential and commercial builders are looking forward to an even stronger 2006.

“What I’m hearing is (home builders) view this as a better year than last year, based on the amount of work they’re bidding on,´ said Mark Kessler, owner of Kessler Construction in Loveland and president of the Home Builders Association of Northern Colorado. “I hear that in commercial, too.”

Weather plays some part in the pace of construction, and Kessler noted that cold weather in February may have slowed things down a bit. “I heard some people aren’t quite as busy as last year at this point but they expect it to pick up as the year goes on because there’s a lot of work in the pipeline,” he said.

According to statistics compiled by the Home Builders Association, the total number of housing permits pulled in Larimer and Weld counties (both single and multi-family) for 2005 was 6,858, up from 6,775 in 2004 but down from 2003’s 6,931 permits.

Dotti Weber, the association’s executive officer, said last year’s total showed rural Weld County with the highest number of housing permits pulled (3,142), continuing a trend seen in the prior two years. Comparing the overall total in Larimer County (including Fort Collins and Loveland) to the overall total in Weld County (including Greeley, Evans, Johnstown and Windsor), housing construction in Weld County (4,190 permits pulled) far outstripped that in Larimer County (1,836 permits pulled).

“I think Weld County in general is pulling ahead of all other areas,” Kessler said.

Mixed signals so far

While home building has been steadily growing around the region’s smaller towns and slowing within the bigger cities, according to some observers there are some mixed signals nationally.

Thirty-year fixed mortgage rates have been sliding up and down in the first months of 2006, dropping slightly to 6.24 percent on March 2 from 6.26 percent the previous week. A forecast of 30-year fixed-rate mortgages by mortgage company Freddie Mac called for an overall increase of about one-quarter of a percentage point by the end of the year. Last year at this time, 30-year mortgages averaged 5.79 percent.

And while housing starts across the nation in January were at the highest level since 1973 – due in part to the warmest January in the U.S. on record – the pace of new home sales slowed in January, indicating a possible glut of new homes on the market in some areas.

John Green, a local economist, said he expects a general slowdown in construction in Northern Colorado due to rising material costs, creeping interest rates and a growing inventory of new unsold homes.

“I do think we are in for a slowdown, although maybe not a drastic one,” Green said. “But we are a growing region with a lot going for us. Retirees and professionals want to locate here.”

Non-residential dropoff

Non-residential construction, including commercial and institutional facilities, dropped off substantially in 2005 compared to the previous year, according to figures compiled by Green. A total of 178 non-residential projects were begun in 2005 compared to 212 in 2004, with a total value of $281.8 million in 2005 compared to $555.6 million in 2004.

Green said 2004’s much-higher valuation reflects the recent expansion of Centerra along Interstate 25 in Loveland and the Medical Center of the Rockies in the same vicinity, among other projects initiated that year.

“2004 was just a boom year for construction,” Green said. And while 2005 was a respectable year for non-residential construction, it had the lowest number of new projects begun since 2000 and only slightly topped 2003 in total valuation.

David Neenan, CEO of The Neenan Co. in Fort Collins, which specializes in non-residential construction, said his company – with operations throughout Colorado and across the nation – didn’t do much in 2005 in Northern Colorado.

“We thought 2005 was a pretty down year for us,” he said. “We didn’t have a lot of business here in town.”

The Neenan Co., one of the region’s largest construction firms and contractor for the $220 million Medical Center of the Rockies, has a strong emphasis in medical and school construction. But about 90 percent of its operations are outside the Front Range, according to Neenan.

Still, Neenan predicts a strong year for non-residential construction both locally and elsewhere. “We see an uptick in construction activity in 2006,” he said. “Our business is growing and we see it continuing in 2006.”

But Neenan doesn’t necessarily attribute that to improving economic conditions. “I don’t see it as a function of the local economy,” he said. “It’s a function of hustle.”

He does, however, acknowledge that improvement in the region’s non-residential construction sector is dependent on more employment opportunities and more job seekers moving into the area.

“I think residential will continue to grow long-term and commercial and retail activity will be procedural to that,” he said. “But more employment needs to come in.”

Most observers say Weld County’s future looks bright – and Loveland’s as well – but Fort Collins needs to change its approach or it will be left behind.

Green said the city needs to “get serious about restoring more of Old Town, building a convention center, resurrecting some of the history of the fort and starting development of the (Poudre) river.”

Kessler said Fort Collins, “if it continues with its attitude of no-growth, will be left in the dust and become another Boulder,” referring to that city’s strict growth limitations and resulting skyrocketing property values that make it difficult for lower-income people to live there.

“My personal opinion in the years to come is Greeley is the place to watch because it really has no boundaries to it,” he said.