Housing market slow but secure

THE BALTIMORE EVENING SUN

This weekly feature offers questions answered by newsworthy business leaders. George Shehan, a partner with American Landmark Homes, a land development and home building company in Harford County, recently was elected president of the Home Builders Association of Maryland.

Q.Everyday we hear about the problems in the housing industry. How bad are things in the Baltimore area?

A.Well, I think Baltimore hasn't experienced the peaks and valleys that many other jurisdictions have gone through like Houston and now the New England area. Building permit activity has slowed here, but it's not slowed to the same extent that it has in many other parts of the country.

Q. Why is that? Why is Baltimore more immune to these changes?

A. I think Baltimore, number one is a more conservative place. It has a job base that is much more diversified than certainly petroleum-related areas, like Oklahoma or Houston. And I think it benefits from its proximity to the Washington market.

Q. Then how would you characterize the Baltimore housing market now? Is it poor, average, above average?

A. I would say that Baltimore needs to be broken down into segments before I could answer that question. In the segment I'll call "upper end," it's certainly slow and as slow as any other place you could find.

Q. The more expensive homes?

A. The more expensive homes . . . right. In the medium-income price ranges, and I'll refer to Harford County, it would be different elsewhere, obviously, but if you're in the $150,000 single-family detached market, it's slow, but it's not entirely inactive. And in the market that's in the $75,000 to $120,000 range, it's still pretty good. And while I can't comment on all the jurisdictions around Baltimore, I think that's probably generally true.

Q. Why do you think that would be? Is it that the people who own existing homes don't want to move up to more expensive homes and yet there are still a lot of people just entering the housing market?

A. I think it's a factor of a couple things. Obviously, there are more people in the economic band that can afford the price range that I'm talking about that is doing reasonably well. But in addition to that, there's certain demographic occurrences that are happening. There are more people divorcing and as a result of a divorce you normally have a move down as opposed to a move up. And I think there are also younger folks who view the ownership of a house as having significant value not only from an appreciation point of view but from a tax impact point of view.

Q. What do you think is causing the sluggish housing market over all?

A. I think there are a number of things. We've obviously gone through a significant growth period, but there really isn't an overstocking of houses to any great extent, so it isn't so much an issue of oversupply. I think it's more an issue of people's uncertainty about economic times . . . I think there's also an impact on the housing market created by legislative impacts, particularly at the local level. A case we're all familiar with is Howard County. They showed a precipitous drop as a result of the building cap legislation they had over there . . . I think on the federal level [it's the] the FIRREA (Financial Institutions Reform, Recovery and Enforcement Act) regulations. We've not yet seen the significance of that impact, but it's going to come, because as a result of those federal regulations, there are little or no development loans available for people who develop land.

Q. How long is it going to be before that shows its effects in the housing market?

A. Well, it's started to show its effects now, but I think its effect will really become apparent over the next year and a half . . . I think that will have a significant impact on housing cost, because I believe the available supply will be significantly down.

Q. What are builders going to do in the meantime, if they don't have land to build on?

A. What I think is going to happen is that we're going to have a significantly different source of funding for development than the traditional savings and loan or commercial bank.

Q. What do you envision?

A. Real estate investment trusts, insurance companies, significant private financing that will fill in the shortfall, until the regulatory agencies correct what I think was an overreaction. And that will eventually happen, but it's going to be a slow process.

Q. Are the builders themselves to blame for going too far in debt or building houses that won't sell?

A. Well, we've gone through an unprecedented period of growth and I think perhaps during that time there were people who got into the business and maybe shouldn't have or maybe there were just too many in that field, particularly on the upper end. So, you could say that to a certain extent, but I think the real impact on this industry has been the things I've talked about: the local and state regulation.

Q. Are there actions that state, local and federal governments should do to ease the problems?

A. Well, I think at the federal level, the cost of money could be made less expensive. And that is occurring now. I think the most important thing, again at the federal level, is some change in attitude with respect to the FIRREA regulations. And on the local level, again, as a result of fairly significant growth, there has been an anti-growth move developed. The Sunpapers last year printed a series of major articles on that issue and it had become a very trendy thing to do, in council chambers around the area to introduce legislation which does things like Howard County. I think there is no doubt that there needs to be good management of growth in these jurisdictions, but it needs to be done in a sensible manner, as opposed to this entirely nonsensical approach.

L Q. What do you advise a home builder to do during this time?

A. A piece of advice which is easier said than done is to rid himself of any standing inventory, complete houses as quickly as he can. We're not starting another project until spring of 1991 in the anticipation that the recession we're in is going to be a short and a mild one . . . And the building project we're going to be doing is in the affordable housing range . . . I think the advice is to get lean and mean for the next 6 to 12 months.

Q. Many consumers are probably worried about the economy and the Middle East Crisis. How would you reassure them that they should buy a house now?

A. Interest rates haven't been any better for a long, long time. We're looking at single digit rates. That is not going to last. Housing prices because of the temporary slump we're in, I think, are competitive. But I do believe that the days of big giveaways have ended. Most builders have reached the point where they can't give anything more away. Right now is a heck of a time to buy a house, I believe. I don't have any to sell, so... I'm not promoting myself.

Q. When a consumer is going to buy a house, what would you advise him to look for?

A. Well, I'd first ask the builder for some references. I'm sure that the building inspector's office would respond to a question, but I would ask the question. I would certainly recommend that he use a builder that has a warranty program and I'd try to find out as much as I could about his reputation as a builder.

Q. You talk about the need to keep housing prices low -- under $150,000 in Harford and $180,000 in Howard -- in order to reach the market. At the same time, you have the tension that's pushing the market up with expensive land. It looks like builders are squeezed in middle.

A. That's a real fact of life. If you look at home ownership over the last 20 years, you'll see a gradual decline in the percentage of people who own their houses and the reason for that is cost. We need to do something about that -- we being the homebuilding industry and more importantly the federal and state legislators.

Q. What can the homebuilding industry do on its own?

A. There is not a lot that an individual homebuilder can do. To the extent that technology improves and that can help cut costs and that can help. People have suggested new methods of building and that can help. It's been tried many times and I'm not sure how well it works, but it probably is an area that could be fruitful. But I think it's really mostly out of the hands of the homebuilding industry and in the hands of the regulators.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
39°