Homebuilders are told worst is yet to come; turning point unclear

The Baltimore Sun

Local homebuilders eager for good news instead heard sobering predictions about the housing market yesterday: Both national and local economists told them that the worst is yet to come.

The most optimistic speaker at the Home Builders Association of Maryland's annual forecast conference was the National Association of Home Builders' director of forecasting, who predicts a bottoming out in the middle of next year. Freddie Mac's chief economist expects it around the end of next year. Baltimore economist Anirban Basu said not until 2009, possibly the middle of that year.

Reasons include lending problems, rising foreclosures, unaffordable houses and high numbers of unsold properties - many of them existing rather than new. All this makes buyers nervous, which only adds to housing woes.

"They are waiting for prices to fall in many cases," said Basu, chief executive of Sage Policy Group, who thinks prices will drop throughout next year.

Organizers said a record number of people turned out for yesterday's event at the Ten Oaks Ballroom in Clarksville, the association's 10th forecasting conference. It drew 360 attendees, almost twice as many as last year. "That tells you something about the level of concern," said John Kortecamp, executive vice president of the state builders' association.

Some builders are really hurting. But others say they're seeing better times now, despite the forecasts. Selfridge Builders, a custom builder that typically handles 10 to 12 houses a year, said sales are picking up again after a sharp drop. The company, which works in pricey western Howard County, sold four homes last month.

"In 2005, it was like everything just shut off and now it's coming back," said Jim Selfridge, president of the company.

Not all the predictions yesterday were gloomy. Though Freddie Mac expects a slow recovery after the market hits bottom, Basu predicts a period of uncertainty followed by "phenomenal" improvement.

Basu thinks pent-up demand from buyers will translate into sales around the same time as people begin to move to the area for the thousands of promised military base realignment jobs, and builders won't be able to accommodate it all because they've been reining in construction.

By some measures, the local new-home market looks relatively good right now. Metrostudy, which tracks the industry, said this week that the region - which it defines as Washington, Northern Virginia and Maryland minus the Eastern Shore and far western edge - is in better shape than most of the markets it follows.

But the continually increasing stock of unsold existing homes is a problem for builders, who aren't immune to that competition. And on top of that, local builders are feeling the mortgage crunch.

Sales in the region dropped about 50 percent last month, compared with September, Metrostudy said. The cancellation rate was 60 percent. The company attributed both problems to the credit crunch that hit in August, pushing up rates on the "jumbo" loans needed for pricey homes and cutting back on mortgage options.

"The banks are going into a bunker mentality," said Kenneth Wenhold, Metrostudy's director for Maryland and Virginia, who did not speak at the conference. "It's a major problem."

Bernard Markstein, director of forecasting for the national association of builders, echoed that sentiment in his conference presentation. Banks are tightening across the spectrum - for borrowers with good credit as well as bad - and some "are just not lending at all," he said.

Frank Nothaft, chief economist for mortgage financing giant Freddie Mac, told attendees that the steep increase in home prices during the boom is a key problem because incomes haven't kept up.

"Affordability is the real crux of the matter," he said. "If we have an improvement in affordability, we'll have an improvement in activity."

Faced with these problems, some builders have cut prices. Many are offering other incentives.

Cindy McAuliffe, president of Ellicott City-based Grayson Homes, said the company - like many of its competitors - is giving closing-cost help. It's also working with buyers to make sure they can sell their own homes, from checking that "they're being realistic about what price they can charge" to sending design consultants to the buyers' homes to make suggestions about "staging" them for sale, she said.

"You know, there's still a lot of people that want to buy homes," said McAuliffe. "They're just a little frightened to right now."


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