Interest in New Hampshire homes has gone through the roof.
“There was (already) reasonable demand for good housing — the sort you’d experience in any strong or up market,” said Peter Powell, owner of Peter W. Powell Real Estate in Lancaster. “But after we had the lockdown and everybody stayed home for a few weeks, we started experiencing some pent-up demand — people wanting to get out of Dodge, move out of the metropolitan areas and find places in the country.”
That demand is “almost at the point of a frenzy,” said Powell, who said he has made it a practice to refuse cash offers from out-of-state buyers seeking to purchase houses sight unseen to protect sellers from the unwieldly nature of desperate buyers who could pull the plug during the inspection stage.
Across the state, cash offers are becoming the norm, and the median home price rose to $350,000 in September, a nearly 15 percent increase from a year earlier.
It’s an intensity that Powell, who has been in the real estate industry more than 40 years, has never seen before in the North Country.
And it’s a phenomenon that is shutting out first-time buyers and others who, it turns out, may have mistakenly thought they could take advantage of historically low interest rates. In fact, said Brie Stephens of Lake Life Realty-Keller Williams in Moultonborough, having financing can make a seller concerned that the house will not appraise at an offer above asking price — “and then they’re back to square one if the buyers pull out.”
Stephens said some buyers, who prefer the financing route, have even attached letters with their offers, showing they have the cash available should the risk of financing approval influence the seller’s decision.
Realtors from North Conway to Moultonborough and Weare to Lancaster all agree there appears to be an uptick in out-of-state buyers snapping up New Hampshire real estate, many seeking a vacation home that could act as their primary residence.
The demand prompted the N.H. Housing Finance Authority to collect sales information from January to August to determine where buyers are coming from.
What it found was that most homes were purchased by existing New Hampshire residents — 8,780 to be exact — followed by 2,000 homes purchased by Massachusetts residents, 131 purchased by Mainers, 127 by Vermonters, 124 by people from Connecticut, 114 from New Yorkers and 103 from Floridians. Another 638 were from other states and 81 had unknown origins.
The chaos may be boosting real estate sales in some areas, but it is symptomatic of another trend that has been brewing for some time: There is more demand for homes than homes available in New Hampshire.
New Hampshire’s housing inventory is reaching crisis levels.
“The inventory of homes for sale is shockingly low, particularly homes selling under $300,000,” said Benjamin Frost, managing director of policy and public affairs at the N.H. Housing Finance Authority.
In August 2020, there were 2,383 homes on the market, a 58 percent drop from a year earlier when there were 5,663 for sale. Two years ago, there were 6,418 homes on the market. Ten years ago, there were 14,500.
There is a perfect storm of factors that have put the state here, said Tami Pelletier, owner/broker at Pelletier Realty Group in Weare, whose husband is a builder.
The pandemic slowed production of building materials, and tariffs on Canadian softwood lumber are averaging more than 20 percent, according to the National Association of Home Builders. The organization reported a 130 percent jump in lumber prices since mid-April, increasing the cost of building a single-family home by more than $16,000.
“Both the builder and the customer are taking a risk on pricing,” said Pelletier. “It’s really not cost-effective to do a development.”
“Material prices have gone up tremendously,” agreed Fred Deveau, president and head of estimating at Deventry Construction in Northfield.
Deventry is building 10 houses at Governor’s Crossing in Laconia, the second phase of expansion at an existing development. He could add another 53 lots, but “that is still up in the air on the time frame, just because of the uncertainty of the building market and prices.”
“We’re trying to stock up on windows,” he said. “I used to get windows in two weeks. Now we’re being told six to eight weeks. Custom colored windows — I just got an estimate of 10 to 15 weeks. There’s a lot of logistics and planning to be thinking about, ordering your windows before you start digging a foundation, but that’s what you have to do,” he said.
In fact, not many housing developments are in the works these days.
“The lack of skilled construction labor is a real constraint on the ability of the market to respond to demand,” said Frost of the Finance Authority. “And that goes a ways back. New Hampshire experienced its true great recession in the early ‘’0s, and there were a lot of builders who did very well in the ’80s who went bankrupt in the early ’90s. Some of them came back and some others didn’t.”
Although there was “something of a building boom” in the late ’90s/early 2000s, “the level of development to accommodate that growth is still pretty low,” Frost added. “There are towns like Bedford, for example, that grew from a farming community, say 40 years ago, into a really suburban community now, and I’d say towns like Bedford are more the exception than the rule.”
The labor shortage is a well-known drag on the industry.
“Ten years ago, it was a concern; today it’s a crisis,” said Joshua Reap, president of Associated Builders and Contractors New Hampshire/Vermont chapter. “The average age of a construction worker is 54 years old, so you’ll have a lot of people starting to retire in this industry in New Hampshire.”
Lakes Region Community College is leading the charge with its programming and partnership with Huot Career and Technical Center — which has programs for Lakes Region high school students — but there seems to be no quick fix to the labor shortage.
Exacerbating things further, many contractors have opted to limit work to renovations, funded by higher-income homeowners who have extra cash to spend on their home. It’s easier to navigate than the regulations associated with building a new housing development.
And then there’s the cost of land. “A lot of really good land has been built on,” said Reap. “It’s becoming more and more of a challenge to find those lots to put homes on, when you’re talking about custom homebuilding.”
Frost also pointed out that because of local building requirements, developers often “build more expensive housing to make a profit from that development,” said Frost. “The idea behind some of these standards is the notion of preserving rural character, and the thought is if you require a minimum 3-acre lot and 200 or 300 feet of road frontage, it will be more rural in character. From a conservation standpoint, that’s the worst thing to do.”
According to Reap of ABC NH/VT, communities that take a long-range view of their future with a 10-year master plan, “tend to be doing a little bit better because they’ve analyzed the market. Londonderry is a good example of a municipality that has a growing population and was proactive in coming up with a plan. By having a targeted approach to development, they’re able to preserve their town’s characteristics and still provide housing people need.”
Pelletier also points to “a lot of land on non-town-maintained roads.”
“You have to upgrade the road to bring it up to town regulations, and that’s not cost-effective,” she said.
“There are towns that have some pretty excessive road construction standards for subdivision, and a lot of it gets to the width of pavement,” agreed Frost.
Some towns have requirements that the road must allow a fire truck to get past two cars parked on each side, he said. “It’s really expensive to build roads, and the wider a municipality requires them to be, the more expensive they become.”
Reap said municipalities should reevaluate, in general, what they’re requiring of developers, said Reap.
“Every requirement and rule just adds more cost to the process,” Deveau said, matter of fact.
Affordable housing advocates and industry leaders have been laying the groundwork for potential solutions.
It’s been 10 years since the state’s workforce housing law went into effect, requiring every municipality to provide realistic opportunities for workforce housing, both rentals and purchases. The Housing Authority is currently completing a report evaluating different community case studies for the law’s 10th anniversary.
In 2016, the Legislature passed the accessory dwelling unit law, allowing single-family homes to have in-law apartments without dimensional requirements. There has been healthy growth in ADUs in places like Merrimack and Portsmouth, without overwhelming neighborhoods, said Frost.
And both Frost and Reap have high hopes for the Housing Appeals Board, a new governing agency that took effect July 1, 2020. The board has the authority to settle disputes between developers and municipalities without going to Superior Court, which often bogs down and adds costs to the development process.
Frost, meanwhile, hopes the upcoming 2021 legislative session will be promising in terms of removing barriers to homebuilding. Two bills passed the House earlier this year, but were killed in the Senate due to the disruption of the session because of the pandemic.
“HB 1629 and HB 1632 provided some changes to the local permitting process, to make it more efficient, to make it more transparent, but also provided some incentives for both developers and municipalities, some additional tools if you will to assist with the development of housing and to encourage municipalities to be more flexible,” said Frost.
While he is confident that the current wave of frenzied buying will pass, that doesn’t mean housing prices will necessarily go down.
Frost said the market could affect a generation of potential homebuyers and people looking for a community to live in.
“It’s going to affect some people, and it will affect where they choose to live because where they choose to live will be in part where they can afford a home,” meaning longer commutes or maybe not being in New Hampshire at all.
“The economy can’t wait for baby boomers to age out of their homes,” he said. “We simply need more housing to accommodate the growth of New Hampshire’s workforce.”