Builders in pursuit of land

Housing: The public's appetite for new homes has taken a bite out of the companies' inventory of places to build them

August 01, 1999|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

Three years ago, while much of the country was enjoying a housing boom, homebuilders in Maryland were complaining about the sluggish state economy depressing new-home sales.

There was plenty of inventory and land. Yet, builders and developers were cautious; shouldering additional land positions could be a fatal strategy. But by last year, everything snapped to life. The state's economy turned vibrant. Unemployment sagged. Consumer confidence soared. Mortgage rates dropped below 7 percent.

First-time homebuyers were coming into the market in droves, allowing move-up buyers to purchase existing, as well as new, homes in numbers not seen since the mid-1980s.

It seemed they couldn't build them fast enough.

"Builders probably had an adequate pipeline until sales started to be so strong," said Fritzi K. Hallock, president of Market Smart, a residential research and consulting firm in Owings Mills. "And they are running out [sooner] than they had programmed. They were caught -- definitely caught -- by surprise in needing to find [land] sooner or having to find it available to go to market sooner."

And now, although midyear Baltimore area new-homes sales are off the pace of 1998 by about 4 percent, area builders are scrambling to find more land as the public's appetite the past 18 months has taken a big bite out of their inventory, sending it to its lowest levels in three years.

Statistics released by the Meyers Group, a firm that tracks and analyzes new-home sales in the Baltimore metropolitan area, show a 13-month backlog of building lots available in the region. If builders stopped acquiring land, it would take 13 months for the public to exhaust the housing stock "in the pipeline" for the Baltimore area.

In June 1998, a 19-month supply existed, and in June 1997 a 22-month supply. The norm for most builders is to have at least a 24-month lot supply, since it takes two years -- if not more -- to bring raw land to the marketplace.

Break it down by product, and there is a 13-month supply of single-family homes, 10 months for townhouses and 18 months for condominiums. Take it by jurisdiction, and Baltimore County is in the most severe position with a nine-month supply. In June 1997, Baltimore County had a 19-month backlog.

"There is a land shortage, or I think we are heading that way," said John M. Flaherty, vice president and Maryland division manager for homebuilder D. R. Horton Inc. "Developers try to plan for their dollars to coincide with the market. And they didn't, nor did we, nor did any of the contractors anticipate a boom year [Developers] didn't anticipate the absorption of their developments in any of the product lines. It seems like it is just not the upper end, it's across the board."

And now with land, material and labor costing more, and with no-growth or slow-growth policies of state and local governments, builders are fearful the area might be heading for a downturn.

"The slowdowns [usually] are demand driven, not supply driven," said Jim Joyce, president of the Baltimore division of the Ryland Group, the area's second-largest homebuilder.

"And this looks like the opposite. We are struggling to keep the lots in front of us. All we are doing is maintaining volume, but in this atmosphere, if we had more lots we could probably be doing twice what we are doing right now."

Joyce said he expects to sell 500 homes this year, but "thought we would easily do another 100 to 120."

`Not a sales problem'

"It's not a sales problem," he said. "All these places where we expected to have additional lots, are coming on now or they will come on before the end of the year. But you can't get deliveries out of them. They'll fall into next year. Good news is that we are up 15 to 18 percent from last year, but we thought we would be up a whole lot more."

Likewise, Patriot Homes, based in Howard County, is enjoying 16 percent higher sales at midyear, said company President Rick Kunkle. But increased sales put a strain on Patriot's inventory.

"We are going through more lots than we anticipated," said Kunkle, who has an 18-month lot supply, down from the customary 24-month backlog. "And I also think that is true for land developers. Their projects are going faster, and there doesn't seem to be as many projects in the approval process or in the pipeline. So we see a shortage.

"Two years ago there were a lot of opportunities to choose from, and today there's quite a few less opportunities, and it is more competitive. I am spending a lot more time on land than I have in the past."

The shrinking supply also can be traced to subdivisions actively selling. For the first six months last year, 5,140 units were sold in 528 new-home communities. For the period this year, 4,927 units were sold in 493 communities.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.