April 26, 2009 - Columbus Home Builders, Columbus OH

Nobody Home

A dramatic downturn in new-home sales has driven some builders out of business; others are hunkering down, hoping for better times ahead

Nobody Home

A dramatic downturn in new-home sales has driven some builders out of business; others are hunkering down, hoping for better times ahead

New-home construction in central Ohio has fallen to its lowest level in more than 25 years as home builders continue to suffer a hangover from the housing boom.

"I've been with Rockford 19 years and been around the industry about 35 years," said Bob Yoakam Jr., president of Rockford Homes. "This is by far the most severe downturn I have ever seen."

Last year, 2,666 home-building permits were issued in the eight counties that make up central Ohio -- the fewest since 1982, when double-digit interest rates paralyzed the industry.

In Franklin County alone, 1,070 permits were issued -- the fewest since at least the 1960s.

The number of homes being built has shrunk to a quarter of the number built during the peak of central Ohio's building boom (2000 through 2004), according to the U.S. Census Bureau.

Builders are hoping that low interest rates, low prices and a shrinking inventory will revive the industry this year, although the first two months of 2009 proved unpromising. During January and February, 30 percent fewer building permits were issued in central Ohio compared with the same period last year, according to the Census Bureau.

The downturn has affected builders across the board, from those that specialize in first-time buyers to custom makers of million-dollar mansions.

Some local players, including C.V. Perry & Co., have closed up shop, while national builders Centex, Toll Brothers and Beazer Homes have abandoned the Columbus market.

Those left are hanging on for a recovery.

"Our goal is just to weather the storm and survive" said Greg Olson, sales manager at Sovereign Homes. "What doesn't kill you can make you stronger."

Most are surviving with much-smaller operations. Two of central Ohio's veteran home builders, Rockford and Duffy Homes, have cut as much as 70 percent of their staffs, company officials said.

The area's biggest home builder, M/I Homes, has gone from a peak of 1,200 workers to about 500 today, the company has reported.

In all, central Ohio has lost more than 5,000 jobs in the construction industry over the past two years, according to the Bureau of Labor Statistics.

Home builders and observers say the industry is paying the price for the boom years, when easy money and rising home prices drew thousands of buyers into new homes who, under normal conditions, would not have been buying until now.

"We were selling forward," said Ken Danter, president of the real-estate research firm Danter Co. "We were getting people into homes with loans and qualifications before they would have ordinarily bought. That's exactly the problem."

Or, as Duffy Homes President Vince Kollar put it: "We were borrowing sales that should have occurred in the future."

Builders have spent the past few years reducing their inventory through aggressive incentives and by halting the construction of speculative homes (those built without a buyer).

The number of unsold new homes in central Ohio has dropped to about 500 -- only a few months' supply even at today's sluggish sales pace.

Builders say new-home prices can't drop much lower, although some builders continue to offer carrots to lure buyers.

Sovereign is offering as much as $50,000 in upgrades on new homes, or the same amount off the purchase price. Fischer Homes, a Cincinnati-based home builder that entered the market a year ago, is offering $8,000 to any buyer until June 1 -- the same amount first-time homebuyers can receive in a federal tax credit. Dominion Homes is offering free appliances during April.

"We're doing anything we can to make deals," Kollar said. "As far as incentives are concerned, everybody has their own hot button. We're listening to whatever it is."

For builders, another pressing concern is the amount of land they bought during the boom -- land that they continue to pay for.

Danter counted 5,818 ready-to-build lots in greater Columbus -- a number that, at the current pace, would require more than two years to sell.

Of even-greater concern is the amount of land platted, though not developed, for building: Danter counted 21,843 such lots in the area -- about an eight-year supply at the current level of sales.

Under the circumstances, builders say, lots can be had for a fraction of the price they once fetched.

Fischer Homes and Ryan Homes entered the market during the past year in part because they could purchase lots at a steep discount from departing builders Centex and Beazer.

Some smaller builders say they benefit from the land glut.

Mark Braunsdorf, owner of the custom builder Compass Homes, almost went out of business in the middle of the boom, he said, because he couldn't find or afford lots. With lots so plentiful now, he said, he's looking toward his best year ever.

"When the market started to turn and lots became available," Braunsdorf said, "the playing field started to level out a bit for a small guy like me."

Even though 2009 started slowly for them, home builders say they think the low might have been reached.

They are encouraged by rock-bottom interest rates and the $8,000 federal-tax credit for first-time homeowners. Builders also note that the upcoming Parade of Homes, with 11 properties, is larger than the 2008 event -- and that three of the homes are spoken for.

Yet they must also contend with tighter loan standards, economic uncertainty and a large supply of existing homes on the market -- many at reduced prices.

In a report to the Central Ohio Building Industry Association, Danter predicted that the market will begin to recover this summer in the midprice range, and by the end of the year in the upper-price range.

Builders say an upswing can't come soon enough.

"Will we see the market turn this year?" asked Yoakam, with Rockford Homes. "I don't know. My crystal ball isn't that good.

"But the more the government can help stimulate the economy and get people to work ... the better for our industry."

Original Story - Columbus Dispatch