About three years ago, back when the housing boom was still booming, David Fleming and his wife pooled their skills - hers in real estate and his in developing - and launched a building business.
They incorporated as Peninsula Building Group, stocked up on land in the Baltimore region and, like many others, built on speculation, confident that they'd find buyers as the houses were finished.
Then the housing market slowed. Then the subprime mortgage market for those with shaky credit collapsed. Then interest rates on "jumbo" mortgages - those above $417,000 - rose.
And now, well, times have gotten a little tough for Fleming.
He's no longer working on spec, "due to the tightening of the credit," he said. He's expanding his services to include renovations, "because remodeling usually heats up when construction slows down." And after deciding not to build on a half-acre lot he bought in Essex, he's been trying for a year to unload the land, knocking his price down by about $30,000 to $209,000.
"You have to keep your eyes open and your options open," said Fleming, who builds just a handful of single-family homes per year. "We're a very, very small fish in the pond, but even the small fish have to eat."
Homebuilders are facing one of the worst housing markets in years, with new home construction at its lowest level nationwide in more than a decade, down 21 percent from last year.
Building permits for new home construction are down 23 percent in the Baltimore metro area, to 3,467 permits issued in the first half of the year, compared with 4,483 in the first six months of last year, according to the federal Census Bureau.
Some developers, like Fleming, are stuck with homes and land they can't sell. Huge national builders - including Pulte Homes, D.R. Horton and Ryland Homes - have reported quarterly losses within the past few weeks, and several builders have had to consolidate operations and lay off employees, economists said.
"Builders are cutting costs in any way they can," said John Kortecamp, executive director of the Home Builders Association of Maryland. "It's been difficult."
The slowdown in housing sales is also affecting those who supply builders - from lumber companies and the Home Depots of the world right down to doorbell manufacturers - along with local governments, which take in taxes and fees on new construction, and sometimes count on new homes to fatten the tax rolls.
And it's unlikely to end soon, according to Anirban Basu, chief executive of the Baltimore economic consulting firm Sage Policy Group Inc. He sees the slump continuing through next year and into 2009.
But there is a bright side for buyers, assuming that they can get the loans they need. The surplus inventory has led some builders to cut prices and others to load up on incentives. Gemcraft Homes is advertising half-price options. Richmond American is marketing "special financing" for pricier homes. And Regal Builders has a coupon that offers $5,000 in free upgrades at one of its communities under construction.
At Thomas Builders in Columbia, sales are down about 20 percent from the norm, leading President T. Kevin Carney to put cash on the table to help with closing costs.
"I had to increase my incentives by approximately 4 percent. That comes out of margins, out of profit," said Carney, who blames the downturn on skittish investors giving up on real estate and people who are having trouble qualifying for loans.
The credit crisis that began with subprime loans has grown to infect large, so-called "jumbo" loans and to rock the stock market this week. Some borrowers are watching offers disappear or become much more costly in just a few weeks' time, with terms changing by the hour.
Home lenders across the country, including most of Maryland's 10 biggest lenders, have cut products, raised rates and altered standards, which means builders are having to work extra hard to help some potential buyers get backing.
Mueller Homes Inc., a builder of custom homes in the Baltimore metro area, has come close to losing two sales because of loan troubles in the past week, said Tony Letke, a vice president.
One buyer had a pre-commitment from a lender for 95 percent of the purchase price on a $1.3 million custom-built house in Sykesville. But the lender recently backed off from that, saying it could finance just 80 percent - leaving the buyer with a $260,000 down payment.
"I don't know whether [the buyer] has 15 percent [more] to put down," Letke said.
"This is going to dampen the motivation of buyers. In years past, people buying million-[dollar-]plus houses were not putting a whole lot of money down and could leave money in investments," Letke said. "It's just making it harder for them, less attractive for them."
On the other side are buyers looking for more affordable housing, such as Wendy Oliver's customers. She's the vice president of sales and marketing at Ameri-Star Homes Inc., a Severna Park builder of single-family homes that cost between $300,000 and $600,000. Many of her buyers have relied on loans that require no proof of income for borrowers with good credit.
"We deal with a lot of buyers who are self-employed, and it's hard for them to show proof of income," Oliver said. "The majority of the investor banks are putting a halt to those loans, and it's frightening. ... Our buyers are going to be funneled out, and it's going to be survival of the fittest with the buyers who can prove their earnings."
Tightening credit restrictions may be a good thing for the building industry if it means better-qualified buyers and more solid deals, said Rob Dorsey, president of Dorsey Family Homes, whose Howard County homes range from $500,000 to nearly $1 million.
"We had a few buyers when the market was hot that should never have been financed," Dorsey said.
Some developers, like homeowners, are facing foreclosure.
Susquehanna Bank foreclosed yesterday on a small developer, putting a home and several lots on the auction block, said Christopher D. Holt, regional president at the bank.
"The smaller builder, that's who is getting caught. That's who [has] overextended themselves," Holt said. "They bet on the market, that it was going to continue strong, and it's working against them."
Fleming doesn't agree.
"Obviously, I'm not as busy as I was before, but I do have projects in the pipeline," he said. "Frankly, I'm optimistic about my future and what it holds for me. I don't know about the others. ... I'm not a negative person. I refuse to give in to it."
Sun reporter Laura Smitherman contributed to this article.