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Vail Valley man says ‘equity sharing’ idea for homes can help housing crunch

Scott Miller

September 27, 2018

 

Local resident Greg Jackson has a plan that will allow equity partners to help finance, and live in, custom modular or log homes, then share a portion of the equity when the homes sell in two years.

 

LEARN MORE

Go to https://www.customhomesbyjackson.com/.

 

 

EAGLE COUNTY — There are hundreds of vacant building lots in the Vail Valley. Greg Jackson believes he has a plan to put homes on those sites and help the valley's affordable housing crunch in the process.

Jackson recently launched Jackson Custom Homes, a project that looks to help people build equity and live affordably.

Using both modular homes and custom log homes, Jackson's plan is to pair two investors in one home — usually a larger main home with attached accessory unit. The investors would pay the mortgage on just the cost to build that home. The home would be resold in two years at market price.

The homes will be fully equipped and fully furnished. All partners have to bring is their personal effects, Jackson said.

At sale, the investors take a prenegotiated share of the equity — Jackson said equity shares start at $50,000. Jackson's company takes the rest.

Then, partners might participate in another home. Or two.

The idea, Jackson said, is to take a partner who might qualify for a $450,000 mortgage and a partner who might qualify for a $250,000 mortgage.

Together, that buying power would finance the construction of a home that would cost $700,000 or so to build but might be worth $1 million or more on the open market.

 

'LUXURY HOMES'

Jackson calls the units to be built "luxury homes," and he's looking at lots in areas including Cordillera. The building rules in parts of that community allow custom log homes. Another spot is the Brightwater development on Valley Road south of Gypsum.

 

That neighborhood, first annexed into town more than 20 years ago, has streets and infrastructure but few homes. Jackson said Brightwater could be a good spot for equity-sharing homes.

Jackson, whose background is in commercial and residential financing, has lived in the valley since 2002. That means he saw the economic slump that hit the valley full force in about 2009. During that slump, people who bought at the top of the market — between about 2005 and 2008 — found themselves with expensive homes that were worth much less than they'd paid just a few years before.

If another deep slump hits, Jackson said equity partners can continue to live in their homes — paying the mortgages, of course — until the market turns around.

The company will buy out people who can't ride out a downturn, he said.

Jackson said he's been working on this idea for the past couple of years. At the moment, he's working a couple of sales jobs, including at the Evergreen Lodge, while putting most of his time and effort into the equity-sharing project.

While there are plenty of lots available at Brightwater, Jackson said there are also a number of building sites east of Wolcott.

 

"We have lot acquisitions we're working on in Minturn," he said.

The equity-share model could be a way for people to transition from renters to owners, Jackson said.

And that transition can happen fairly quickly. It can take between five and seven months to have financing arranged, equity shares negotiated, homes ordered from suppliers and the product built on site.

The idea, Jackson said, is to both address a need and help people build wealth.

"We've got to make this place home for everyone who lives here," he said.

Vail Daily Business Editor Scott Miller can be reached at smiller@vaildaily.com and 970-748-2930.

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Why High-Flying U.S. Home Prices Seen Getting Another Jolt

By 

Vince Golle

April 25, 2018, 3:00 AM MDT Updated on April 25, 2018, 11:28 AM MDT

The U.S. housing market’s storyline for the last several years has been one of steady demand and limited supply, pushing prices ever higher. Now, a new chapter has opened up for the industry and its customers: soaring costs for building materials.

 

 

Reports on Tuesday underscored both resilient purchase activity and accelerating home prices. The S&P CoreLogic Case-Shiller index showed property values in 20 major U.S. cities climbed 6.8 percent in February, the biggest year-over-year gain since June 2014. Government data revealed a faster-than-projected rate of new-home sales in March and huge upward revisions to the prior two months.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories of previously owned homes are plumbing the lowest levels in at least 19 years, a key reason why resilient demand by itself has fueled price appreciation that’s extending to the new-homes market. Now, with the costs of lumber and other building materials soaring together, buyers are unlikely to see any relief for some time.

 

In fact, builders such as PulteGroup Inc., Lennar Corp. and KB Home have indicated they are having success passing along construction costs and signaled margins will remain in good shape going forward.

“There is pressure on a few of the commodities and we are all dealing with some of the labor pressures that have been in the news. So we expect that you’ll continue to see some pressure. And in the first quarter, we were able to outpace the cost pressure with price.”
-- Jeffrey Mezger, CEO at KB Home, on March 22 earnings call
 

“There is inflationary pressure on commodities. The good news is that we’ve seen a market that’s allowed us to price to cover most of that.”
-- Robert O’Shaughnessy, CFO at Pulte, on April 24 earnings call

The cost of materials is important because everything from the laying the foundation to framing to painting represents the largest share of a typical single-family home purchase, according to an annual survey by the National Association of Home Builders.

 

Cost to Build

From slab to rooftop, materials are biggest share of typical new U.S. one-family home

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: National Association of Home Builders' 2017 survey results

 

 

What Our Analyst Says

For homebuilders, rising construction costs are definitely the biggest headache at the moment (and have been for much of the cycle). In the near-term, builders will be able to raise prices to offset material cost inflation. You may see some whose average selling prices are slowing, but that’s primarily due to mix, while ‘like-for-like’ pricing has improved across much of their footprint. A lot of that has to do with a lack of supply.

-- Drew Reading, U.S. homebuilding analyst, Bloomberg Intelligence

 

 

The framing of homes, or putting up roofs and walls, accounts for 15 percent of the cost of construction. A composite measure of the cost of lumber for framing rose 16 percent from December to March, according to data from Random Lengths, a publisher of information on wood products.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

And it’s not just lumber. A Labor Department gauge of prices paid at the producer level for construction inputs -- everything from particleboard and plumbing to concrete and insulation -- was up 5.1 percent in March from a year earlier, the biggest annual advance in nearly eight years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

So far, neither higher home prices or a four-year high in mortgage costs have been enough to dissuade buyers. Results of the Conference Board’s consumer confidence index on Tuesday showed 1.7 percent of the group’s respondents in April planned to purchase a new home in the next six months, matching the highest share in this expansion.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Helping shape that pickup is a larger share of Americans who say that now is a good time to buy because prices aren’t going to fall any time soon. Sixteen percent of consumers surveyed by the University of Michigan in March said that homebuying conditions were “good” considering asking prices won’t get any better.

 

 

 

 

 

 

At some point, affordability will become a bigger issue for those wanting to own a home. So far though, consumers are taking higher home prices in stride and builders remain relatively upbeat about the market’s

prospects.