Builders feeling the squeeze

Market: A buoyant economy is allowing more buyers to afford single-family homes, increasing demand on builders, who are facing a land shortage, and causing prices to appreciate before a development is finished.

June 13, 1999|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

Joel and Melanie Goron had to feel satisfied after reading a notice posted by their builder, at The Preserve at Rocky Gorge, where the Gorons broke ground for a home in October.

"At the end of January we were shocked," Melanie said. "We had come by and there was a note posted on the door of sales trailer that said, `Due to an overwhelming demand for lot sites in the community they had temporarily restricted sales.'

"We knew that things were selling quickly, but I guess . they were selling too quickly. It's pretty unbelievable."

It wasn't until a few weeks ago, with the opening of the model home in the Ryan Homes Inc. development, that the company resumed taking orders in one of the hottest-selling communities of single-family homes in Howard County.

"We had to shut it down at one point since sales were so brisk," said Bob Coursey, marketing director for Ryan Homes. In the first three months of the year, the company had taken 17 contracts for the project in Laurel. "When deliveries get out so far in front you're just very vulnerable," he said, adding that settlement dates were reaching into March and April of 2000.

There is no question that consumers buying new homes in 1999 are going straight for the single-family residence. With confidence and a healthier financial situation than in past years, buyers are bypassing townhouses and condominiums to go for the larger purchase.

"What used to happen is that people would [look] into single-family [homes] because that is everybody's dream," said Linda Veach, vice president of Bob Ward Homes. "When they find that they really couldn't afford it, they would go to the townhouses.

"Now, they are not coming to the townhouses, because they are finding out that they can afford the single-family. Our single-family traffic is much higher than our townhouse traffic."

And even though new-home sales in the Baltimore metropolitan region statistically slumped in the first quarter of 1999 when compared with 1998's breakout year, the general feeling among industry professionals is that this year will hold its own.

According to The Meyers Group, a firm that tracks and analyzes new-home sales, closings in the Baltimore metropolitan market fell 9.9 percent when compared with the first quarter of 1998. All three product types -- single-family, townhouses and condominiums -- lost ground, but that didn't seem to faze Coursey, whose Ryan Homes continues to dominate the Baltimore market in sales of new homes.

"I would say that it does not reflect the strength of the marketplace the market still has legs," Coursey said. "You couldn't ask for a market with more demand than we have right now. [The numbers] reflect the lack of inventory.

"It's almost like the Mark McGwire thing. If Mark McGwire hit 70 home runs last year if he hits 69 this year would it be a bad year? That is what we are looking at; 1999 is looking like a tremendous year, whether it is going to be a 70-home-run year or a 65-home-run year is yet to be seen."

Overall, condominium sales were down 27.3 percent; townhouse sales dipped 16.4 percent; but single-family sales were almost even with last year's first quarter, sliding just 0.9 percent.

"The single-family [detached] market is still doing really well," said Anna Pitheon, regional sales director for The Meyers Group. "That is still the biggest portion of the Baltimore metro region, almost half. The two markets that are behind are Anne Arundel and Baltimore counties. That is specifically due to the shortage of new product availability."

The lack of ready inventory to sell, the difficulty in obtaining new land positions, shortages in drywall, lumber and skilled labor are all cited as the obstacles builders are trying to cope with this year.

According to the Meyers list of the top builders in the Baltimore metro area, the top three -- Ryan, The Ryland Group Inc. and Pulte Homes Corp. -- had fewer sales in the first quarter this year compared with the same period in 1998. Ryan had 49 fewer sales, Pulte had 46 fewer and Ryland was off by seven fewer sales.

"It's a killer [finding new land]," said Jim Joyce, president of the Baltimore division of The Ryland Group. "We are closing out of places faster than what we thought, and the new places are taking longer and longer to get in place -- if you can find them."

According to Meyers, the number of months it would take to sell all the existing single-family inventory in the Baltimore area shrank from 15 months for the first quarter in 1998 to 13 months this year. Generally, builders feel comfortable by having an 18-month supply of inventory to satisfy the market.

"There is less land available. There is less land going through the approval process. There are less developed lots out there," said Ryan's Coursey. "And there are more players going after those lots, so that has created some holes in certain product niches, in certain price points, and in certain counties that has made it" difficult.

Slowing process

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