The past three years have been desperate times for home builders. Even with more houses under construction this year, builders say the tough times aren’t over.

The challenges keep home builders from hiring more or paying subcontractors more.

“We’re all still just trying to survive. It’s very difficult because the customers now are all very accustomed to low prices, with all the distressed sales,” said Centerville custom home builder, remodeler and developer Bob Rhoads.

Pent-up demand, low home prices and historically low interest rates are spurring home buyer demand, builders and industry watchers say. The 576 building permits issued so far this year in the Dayton area for single-family homes beats 2011 numbers, but is still below pre-recession levels, according to Home Builders Association of Dayton data.

Average U.S. interest rates for fixed 30-year home loans fell to another record below 4 percent last week.

“Everything’s supply and demand,” Rhoads said. “They’re not all building, but they’re queueing up.”

But as the market improves, customers are asking for more concessions and negotiating lower prices, while the cost of building materials is rising. That squeezes builders’ profits.

The average sales price of existing homes in the Dayton region in May was $130,000, according to Dayton Area Board of Realtors, the most recent figures available. By comparison, the average sales price May 2007 was approximately $140,000.

Builders are selling lots to homeowners at discounts because of excess inventory, Rhoads said. Cuts in national production for drywall and supply disruptions for softwood lumber have increased prices of these key building materials, said Bob Denk, an economist for National Association of Home Builders.

Higher oil prices have increased the cost of materials made with petroleum products, such as asphalt. And deliveries to a building site can have fuel surcharges.

Profit margins of members of the national builders association dropped to 6.8 percent of the sales price on average last year, down from more than 11 percent of the sales price five years ago.

“Surcharges and things like that are going to come down to a one-on-one basis with the person supplying it and the builder. I’ve had long-term relationships with all my people, so have I seen them? Yes. But do we negotiate them out? Yes. Because if I can’t control my costs, I can’t sell to the savvy consumers,” said Todd Hall, a West Chester Twp. builder on pace to build 25 houses this year.

“I can’t sell to the savvy consumers because I can’t financially compete if I’m paying six to 12 percent more to build a house than I was.”

Home construction drives economic growth through spending on building materials and employment, said Shaun Bond, director of University of Cincinnati’s Real Estate Center.

Employment in new residential construction in Montgomery County dropped almost 50 percent from 650 jobs in 2007 to something less than 400 jobs this year, according to Economic Modeling Specialists Inc., an Idaho labor data firm used by local economists.

New residential construction jobs in Greene County dropped from about 280 jobs to about 140 over the same time. That doesn’t include real estate agents or jobs at home retailers.

EMSI estimates total employment in Montgomery and Greene counties to be nearly 350,000.

“Home building is going to take a while to come back because of housing prices still being so low. It’s still well below construction costs,” Bond said. Rhoads is building a new model house on Horseshoe Bend in Washington Twp. in Trails of Saddle Creek, his first new house in four years to be built without a buyer in hand. He has five houses under construction in the price range of $400,000 to $600,000. At one time, R.A. Rhoads Inc. Custom Homes built 25 to 30 houses a year for $500,000 to $1 million each.

Requarth-Supply One, a Dayton supplier of lumber, cabinets and windows to contractors, said more builders are coming through the doors with blueprints, but it’s nowhere near where it was. The bulk of the business increase this year is remodeling, not new houses, said President Alan Pippenger.

“We will have to build more houses because we’re not even building at a replacement rate. But I think it’s going to be dampened by the loss of equity,” he said.

“I think clearly the massive loss of valuation; it’s made it difficult for people to obtain financing. It’s made it difficult for people to sell their homes... I think this loss of home equity will have a massive impact on new home building construction for some time.”

Contact this reporter at (513) 705-2551 or clevingston@coxohio.com.