Post-recession, building a recovery in Maryland, one home at a time -- Gazette.Net


This story was corrected May 4, 2011. An explanation follows the story.

Seven years ago, at the height of the housing bubble, the state issued more than 24,000 permits for single-family homes and more than 30,000 for multifamily homes, according to the U.S. Census Bureau.

Post-burst, those numbers hovered around 8,000 and 12,000, respectively, as of 2011, as the homebuilding industry tries to claw its way out from the Great Recession.

But while builders are taking heart in an early spring market and a slowly rebounding customer confidence, many worry that constantly changing building requirements could hamstring a recovery.

“The housing industry is more important to the overall economy than most people realize,” said Anirban Basu, chairman and CEO of Sage Policy Group of Baltimore. “The recovery has been substandard because the housing industry is not participating.”

The industry is experiencing glimmers of hope, Basu said, as the market stabilizes and inventory drops to six months or less, especially in areas such as Montgomery County. While he would not describe these markets as primed for sellers, they set the foundation for a recovery.

“There will be a seller’s market in the next several years in part because the current product is from 2005,” Basu said. “We’re just not there yet since the crisis was so profound and there is still a lot of foreclosures and short-sale inventory to go through.”

Spring marketWinchester Homes in Bethesda built 300 homes last year, up 50 percent from 2010.

“There is a spring market. Better locations are still performing better, and a product has to be priced right and be compelling enough to convince people to secure that down payment,” said Steve Nardella, senior vice president of operations with Winchester. Business bottomed out in 2009, he said.

“Last year, people knew it was a great time to buy, but that growing confidence was slow to come,” Nardella said, emphasizing that a robust housing market goes hand-in-hand with a growing job market and rising incomes.

The Greater Washington metro market, where Winchester sells, saw home prices increase 3.5 percent last year, said Nardella, who also is president of the Maryland National Capital Building Industry Association. The association has more than 500 member companies.

He said the industry predicts both sales and prices to increase in 2012.

Nardella said sellers are seeing older buyers than in previous years with higher incomes, although they are not buying as much as they can afford. He said down payments remain a challenge for many buyers, as lenders have raised their requirements.

“Things are better now than two years ago,” said Lou Baker, president of Goodier Baker Homes in Lutherville. “We’re seeing decent news in the economy. People are moving through stages of life where they believe the prices have hit bottom and they need to live their life and stop waiting to buy.”

Goodier Baker has ongoing construction products in Howard County, including 16 homes — with nine sold — at Scott’s Glen in Columbia and 46 homes planned for Belle Haven Estates in Woodbine.

“There’s more likely never been a better time to buy a home. Affordability is at an all-time high,” Baker said.

In Frederick County, 133 new building permits were issued in January and February, compared with 72 for the same period last year, said Denise Jacoby, executive officer of the 255-member Frederick County Building Industry Association.

“We’d like to see a couple more months of these figures to be sure there’s a trend,” Jacoby said. “Prices remain an issue. It’s still difficult for people to qualify for financing, and younger folks are not ready to commit.”

She added that could change as rents rise, making homeownership more appealing.

But others say renting will remain the more popular option for many.

Apartment market fared better in recession

“The single-family home market will not return to the heyday of selling 30,000 units in the Washington market,” said Ken Rehfuss, president and owner of RKR Construction, an apartment remodeler in Bethesda. “You’re seeing more multifamily homes toward the mass transit areas.”

Overall, the apartment sector fared better than the single-family throughout the recession, as multifamily homes do not carry the threat of value depreciation, Rehfuss said. But the industry still must contend with difficulties in securing funding for projects, which can push projects to four years before anything comes to fruition.

The state government has been more helpful lately in providing financing for renovation projects, he said.

“The Washington apartment market is one of the top markets in the nation,” Rehfuss said.

Custom work is looking up

Custom homebuilders are more optimistic.

“Since November, there’s been a significant swing upward,” said Phyllis Michaels, owner and managing member of Crescendo Builders in Bethesda. She attributed the stronger market to buyers needing more choices and said Crescendo is to build six homes this year.

Michaels said Crescendo also is looking into speculative work again, as banks are lending more. Crescendo had cut back on speculative building during the recession.

David Niroo, whose Niroo Masterpieces in Bethesda constructs 33,000-square-foot mansions, said more people have been viewing his homes.

“You have to be careful,” Niroo said. “If you’re going to build, it has to be high quality, so it can be marketed.” Since the recession, quality has improved, with lesser-quality builders pushed out of business, he said.

Other custom builders, such as Design Alternatives of Hunt Valley, turned to more remodeling after the recession.

Rising fuel prices have made freight costs higher, so that lumber deliveries, once free, now either carry a flat fee or the cost is calculated into total lumber costs, said company President Mike Bowers.

Building suppliers also are enjoying some breathing room.

“Pre-2008 is not going to be here again for a long time, but it’s been getting better,” said Sandy Dyson, office manager of Dyson Building Center in Great Mills. “The early spring has certainly not hurt, either.”

Fuel price increases also are affecting her business, as prices rise for oil-related products such as plastics and copper, she said.

“Our contractors have not really been busy yet, so we’re relying on steady customers,” Dyson said.

TW Perry saw its year-over-year sales increase by almost half in the first quarter, said Mike Moore, vice president of materials management. The Gaithersburg company, which works mainly with remodelers, has grown to 321 employees from 285 a year ago.

He said the company is “cautiously optimistic,” but it is still difficult to handle upticks in product demand, as manufacturers are reluctant to ramp up their operations.

Restrictions and impact costs still loom

Despite the glimmers of recovery, builders still chafe at increasing government restrictions.

“County regulations have gone through the roof,” said Mark Stevens, vice president of Stevens Builders in Dayton.

“It now costs $47,000 for a permit and all its impact requirements, when it used to be $10,000,” Stevens said. “We’re close to spending $100,000 before even breaking ground.”

Bowers, at Design Alternatives, said fees to stay in business have also risen, with building licenses increasing to $50 from $17.

“Little by little, every single thing goes up,” he said.

“Montgomery County is always a challenge, continuously revising its code and making it much more difficult to build a house,” said Michaels at Cresendo Builders. “New homes are increasing the tax base in Montgomery County, so the building atmosphere should be conducive to that.”

She said restrictions have made it particularly challenging to build a garage on smaller lots, which means more cars on the streets.

“It’s a very complicated business. ... And the approval process never gets easier. It’s just becoming more and more complicated,” said Winchester Homes’ Nardella. “Anything that creates uncertainty increases risks and makes us second-guess a project.”

He said buyers might be displeased to realize government fees can account for $40,000 of their home price.

Baker said builders also are paying attention to the stricter septic regulations passed in Baltimore, which could put more pressure on the industry.

Explanation: Winchester Homes built 300 homes in 2011, up 50 percent from 2010. The original version said it planned to build 300 homes this year, up 50 percent from 2011.