Even as home-buying activity in Maryland accelerated in the first six months of the year, construction of new houses has remained stubbornly low.
Permits in Maryland for single-family homes fell 3 percent year-over-year through June, continuing to hover at less than 6,000 — about half the level of a decade ago.
While that could increase in the second part of the year, industry members said they expect growth to be modest for the foreseeable future.
"What we think it will be is just a steady increase in sales," said Steve Smith, president of Gaylord Brooks Realty Co., which is working on two developments in the region, including one with more than 350 lots. "I don't see a land rush coming on."
The Baltimore region ended a nearly two-year streak of year-over-year gains in sales of existing homes in July, as prices started to edge up and the options available to buyers shrank for the 11th month in a row.
Despite signs of improving buyer appetite, there's been little uptick in new construction.
Industry analysts said the cost of new homes, which are typically more expensive than their existing counterparts, remains prohibitive for many, as household incomes lose ground against inflation and families face higher lending standards. Unlike in previous years, some analysts said, families also appear to be less willing to live remotely to buy a new home within their grasp.
"There's a larger spread than normal between new-home pricing and resale pricing," said Ben Sage, director of the Mid-Atlantic region for the Metrostudy research firm. "That would be my best guess as to why the new-home market is not really participating in what appears to be a rally in the resale housing market."
Demand also remains weak. Surveys show homeownership shrinking to historic lows across the country, while growth in new households in Maryland stepped back in 2015, according to estimates by the Bureau of Labor Statistics.
"The market, even though it's improving, it's still weak enough that to carry the overhead that it takes to run a successful homebuilding operation is a very big bet," said Mike McCann, president of Baker Development, who spent years in the residential construction industry but turned his focus to more general development in the last year. "Until we have something, in my opinion, nationally and locally that adds real jobs, I don't see anything changing."
With increasing costs of development, including impact fees and land prices, builders said it's difficult to create homes for lower-priced buyers.
It's also become harder for smaller firms to compete, McCann said. The number of residential construction firms in Maryland declined 11 percent between 2007 and 2012, while employment in the building construction sector remains below pre-recession levels, according to federal surveys.
Lenders have also been hesitant to back homebuilders since the housing crash, turning more attention to multifamily apartments, said Anirban Basu, CEO of Sage Policy Group.
"There is a some level of demand that's being unmet and it's being unmet because so much capital continues to flow into the multifamily rental market," he said.
The single-family homebuilding industry is considered a critical gauge of the economy, thanks to its ripple effect on household spending and job creation. Some economists say the hangover from the housing burst has been holding back broader national growth.
"What is frustrating is that we don't see single-family construction," Basu said. "That's constraining overall economic growth."
Despite the lackluster permitting, some said they think that could be changing.
CalAtlantic Homes, a national company created last year after a merger of Ryland Homes and Standard Pacific, has opened nine new communities in the Baltimore region this year and is planning more, focusing on single-family products, said the firm's Baltimore president, Doug Shipe.
The firm told investors this month that the Baltimore market has seen 40 percent year-over-year growth this spring.
"As the Baltimore economy continues to recover, homebuilding permits should rebound as well," he said.
The custom-home side of Annapolis-based Timberlake Design/Build, which typically completes 15 to 20 homes a year, expects revenue to grow 15 percent to 20 percent from last year, said President Dave Lunden, also president of the Maryland Building Industry Association.
While custom homes tend to serve affluent clients and be insulated from the broader market, the development side of the business is improving as well, he said. Timberlake has six communities in the works, about half of them townhouses, he said.
"We've come back a great deal. It will be a long time before we get back to that boom," he said. "We're still recovering, is a good way to say it."