Homebuilders get leaner as sales fall

Inventory of unsold new homes rises 61% in region

November 10, 2006|By Lorraine Mirabella | Lorraine Mirabella,Sun reporter

Local homebuilders are slashing overhead, holding off on some projects and redoubling marketing efforts as they adjust to the slump in the once hot housing market.

Toughing it out now should allow them to be ready for the upswing they expect from a regional population surge linked to the consolidation of the nation's military bases.

Potential buyers are no longer lining up to buy homes as fast as they can be built as they did for several years through 2005, builders and others in the industry said yesterday at an annual real estate forecast conference sponsored by the Home Builders Association of Maryland.

Now, despite only slight increases in mortgage rates that have remained low by historical standards and continued strong employment, buyers are hesitating to buy - and more are backing out of contracts

"The psychology has changed," said Michael Carliner, senior economist for the National Association of Home Builders and a panelist at yesterday's conference in Clarksville in Howard County. "Until people think it's a good investment and prices are not going to go down, people are reluctant to buy."

As prices soared during the boom, buyers, many of them speculators, got into the housing market to capitalize on the rapid appreciation. Now speculators are fleeing the market and potential homeowners are fearful of values dropping, he said.

The slowing demand, combined with overbuilding that had been fueled by the speculative buying, has led to a pileup of unsold houses. "It's not as much fun this year as it was last year," said Bill Luther, president and chief executive of Gemcraft Homes in Forest Hill. "One of the big changes is in [buyers'] attitudes. What we [builders] have to do is get liquid and get lean," hesaid.

New home sales are expected to fall 15 percent nationally this year and by 7 percent to 8 percent in 2007, said David W. Berson, chief economist for Fannie Mae, at the conference.

In Baltimore and the five surrounding counties, standing inventory - unsold units that are completed or are within 30 days of being finished - increased more than 61 percent in September compared with a year earlier, according to Hanley Wood Market Intelligence.

When homes to be completed within one to six months are included, the number of unsold homes soared 130 percent, Hanley Wood said.

Even with inventory building, Maryland has fared better than states such as Florida and Georgia in keeping production in line with growth in jobs and population, Carliner said.

That shows up in prices of new homes in the Baltimore area.

The Hanley Wood report shows the average minimum sales price - the lowest price for a particular new home with no upgrades - was up 5.4 percent in September and 12.8 percent for the year through September.

In contrast, the average new home price nationwide fell 9.7 percent in September, the biggest drop in 35 years, according to the Commerce Department.

Falling prices

Prices are falling in areas such as Northern Virginia, Phoenix and Orlando, Fla., economists said at yesterday's conference. And that trend will continue, they predicted.

New home prices in 10 of the nation's largest metropolitan areas are expected to fall an average of 7.7 percent from June 2006 to June 2007, said Thomas A. Lawler, founder of Lawler Economic and Housing Consulting LLC in Vienna, Va.

Lawler expects prices to continue to drop in the short term, including in Maryland, where he foresees a 10 percent decline over the next year

Homebuilders are feeling the pain. Just last week, two of the nation's big homebuilders reported miserable quarters.

At Beazer Homes USA, of Atlanta, orders plummeted 58 percent from a year earlier and net income fell 44 percent. Luxury builder Toll Bros. said signed contracts were down 55 percent and home-building sales were off 10 percent.

In Maryland, market performance has been spotty, said Dave Carney, Beazer's division president for Maryland.

Sales are strong at the builder's projects in suburban Baltimore - the Quarry Lake at Greenspring development of condos and single-family homes and a project in Mount Washington.

But in Clarksburg, in Montgomery County, where many new home projects compete, the builder dropped prices about $40,000 per house on single-family homes that were selling in the high $600,000 to low $700,000 range, Carney said.

Project on hold

The builder has put on hold plans to build an active adult community in Howard County, though it is proceeding with getting approvals. And to drum up business in active adult communities, the builder has started a program to guarantee buyers a minimum price for their existing homes.

To generate interest in its homes, Toll Bros., based in Horsham, Pa., has held weekend- long events in which it features special offers, such as making specific options available for $1.

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