Oregon Public Broadcasting

Not so long ago, single family home construction was fueling much of the Northwest's economic boom. Builders couldn't put houses up fast enough.

Then the recession hit and homebuilders shut off their backhoes and set down their hammers. Projects stalled out, builders went belly up.

In the second part of our series “The New Normal,” Olympia Correspondent Austin Jenkins reports on the future of the Northwest homebuilding industry.

I'm in the Cherry Meadows subdivision in Yelm, Washington and there are at least half a dozen houses here that are almost finished and are sitting empty.

There are a couple of other houses that appear to be completely finished, they are also vacant. And then there's the house I'm standing in front of. It's half-constructed.

It's framed, there's some windows in, a couple of doors. But as the neighbors pointed out the pigeons have taken over.

Jeff Holmes stands outside his house in the Cherry Meadows subdivision in Yelm, Washington where construction has halted. A half-built house stands in the background.

Jeff Holmes: “You know what pigeons do when they do what they do. Supposedly it just reeks in that place.”

Jeff Holmes bought a home in Cherry Meadows about a year and a half ago. He's in the Army and recently got back from Iraq. He returned to a ghost town.

Jeff Holmes: “I would describe it as a large housing community project that was only maybe one-fifth finished. So you have a lot of streets with started driveways and power hook-ups that lead nowhere because there were never any houses built on the lots."

Cherry Meadows is a symbol of what happened to the Northwest home construction market when the recession hit.

Throughout the region, you can find half-built subdivisions where literally one day developers and builders called it quits - leaving behind empty lots and half-built houses.

In many cases bankruptcies and foreclosures followed. The collapse followed an unprecedented building frenzy where – at the peak – some 5000 home building permits were being issued in Washington per month.

Arun Raha: “That was unsustainable.

Arun Raha is Washington's state economist.

Arun Raha: “We not only had a price bubble, we also had a quantity bubble. And now of course we're seeing the downside of that because the bubble has burst.”

Today Washington continues to grow, but the number of housing permits issued per month – 1500 in June for example – is a third of what it was at the peak. So what does the future hold?

Raha predicts home construction will grow again -- eventually.

Arun Raha: “We expect to keep losing construction jobs through the third quarter of 2010, housing will recover after the rest of the economy recovers. But when it does recover it will recover pretty sharp.”

Already there are some hints of recovery. Quandrant Homes, Washington's largest homebuilder, recently announced it's picking up the pace of construction.

Generally though, Raha says first the excess supply of housing needs to be absorbed.

One person who's had a painful ringside seat to the collapse of the home construction market is Chuck Hoeschen. He specializes in construction loans at South Sound Bank in Olympia. He remembers the good old days.

Chuck Hoeschen: “Well, it was just a market that you couldn't build it fast enough.”

Credit was easy to get, consumer demand was high and everyone was riding the wave. Hoeschen says when the crash came at first a lot of builders were in denial.

Today, his bank maintains its five-star rating, but his job has changed dramatically– rather than doling out loans, he spends much of his time counseling financially-troubled clients.

Chuck Hoeschen: “It's a totally different environment. It's very sobering for some. And I've heard it many times – the words come out of their mouth: ‘I never thought I'd be in this position.'”

Hoeschen isn't privy to how many of his bank's home construction loans are in arrears. But according to the Federal Reserve, 17 percent is the average past due rate on residential construction loans in Washington - up from 6-percent a year ago.

Hoeschen says in the future builders are going to have to be a lot more savvy about what they build and where they build it.

Chuck Hoeschen: “It's not just hey I want to build a house, throw it up for sale and it's gone. No, those days are gone right and I don't know if it will ever come back to that. You're going to have to work for it. And gotta put some thought into it and some research in it. Where is the market lacking in housing? And that's where you build.”

Or maybe you don't build at all. That's what's happening in the condo market in cities like Seattle and Portland. After a condominium building craze, now there's a glut of condo units on the market.

Developer Alan Winningham recently auctioned off the remaining units in one of his high-end projects in Seattle.

Winningham doubts he'll ever build a new condo complex again.

Alan Winningham: “I see our future acquiring under-valued construction that's on the ground today from people who either are unable to keep it or banks. I think there's a lot of opportunity out there.”

Back at the Cherry Meadows subdivision in Yelm, Washington, “For Sale” signs dot the landscape.

Resident Jeff Holmes likes the quiet these days but expects the sounds of homebuilding will return – if for no other reason than the strong military presence in this area.

Jeff Holmes: “With as much of a transient population as here and the way that Fort Lewis is supposed to keep growing, ya I think this will continue to grow once the market comes back.”

When the home construction market returns – throughout the Northwest – builders will have to cater to a radically different environment -- banks with much tighter lending practices and buyers who are more frugal.