Signs of building life

The Baltimore Sun

As the federal government released figures yesterday showing an unexpected uptick in housing starts and building permits, Maryland homebuilders are reporting flickers of life in the long-moribund local market for new homes.

Builders say they're seeing an increase in foot traffic through model homes, with fewer window shoppers and more serious buyers. While hardly booming, they say, sales are edging up as some buyers are deciding the market is at or near a bottom.

Michael DeStefano, president of Sturbridge Homes in Gambrills, said rising sales from his inventory of homes are a leading indicator of future building activity and retail sales - as buyers furnish their new homes.

"It's a huge multiplier to an economy - a new house," he said.

But economist Anirban Basu, chief executive of Sage Policy Group in Baltimore, cautions that the glimmers of hope might be more of a false spring than the start of a new boom. And others say the new housing market likely won't move forward until the resale market stabilizes.

"We know the broader Maryland economy is continuing to deteriorate," Basu said.

Nevertheless, if the new national numbers aren't a one-month blip, the anecdotal evidence from Maryland model homes could be an indication that the state is playing its part in what many hope is a revival of the U.S. market for new homes.

The U.S. Commerce Department reported that housing starts in February rose 22.2 percent from those in January. Housing starts were still about half those in February 2008, but last month's performance represented the first increase since June.

Building permits were up 3 percent from January levels - another unexpected gain.

Together, the numbers helped buoy the stock market, propelling the Dow Jones industrial average to a 178-point gain yesterday.

Regionally, the Northeast posted the strongest numbers with almost a 90 percent jump in housing starts between January and February. While Maryland is officially grouped in the Southern region, which posted a 30 percent gain, the state generally is regarded as having more in common economically with the Northeast.

The national gains were dampened somewhat by the continuing devastation of the housing market in the West, where several states remain in the grip of a persistent foreclosure crisis. Housing starts plunged by 25 percent in that region from January to February and were down almost 60 percent from February 2008.

Maryland homebuilders attribute the perceived improvement in local conditions to a sense that financial markets might have stabilized and a hope that prices are not going to go much lower, as well as local factors such as military base realignment.

John Kortecamp, chief executive officer of the Home Builders Association of Maryland, said he started hearing reports of increased traffic in new-home sales offices a few weeks ago. He said his members also report that the buyers looking at models are better prospects than those looking in previous months.

"It looks like we're going to get a little bit of an upswing this spring," he said.

The slight improvement in sales might not yield immediate benefits in housing starts because many builders are working off the inventory they built up during the long housing slump, Kortecamp said.

"They're building enough to stay in business but not enough to get ahead of themselves," he said.

DeStefano said he's not yet at the point of taking out new building permits, but he could be soon if sales out of inventory heat up. He said traffic through his models is up 25 percent to 30 percent compared with December, and the number of prospects coming through his GrandView at Annapolis Towne Centre project in the Parole section of Anne Arundel County has roughly doubled.

Veronica St. Clair, community sales manager at the Vale Meadows development in Harford County, said she's beginning to see the effects of the Pentagon's base realignment and closure process, which is moving hundred of jobs from New Jersey to Aberdeen Proving Ground. She said sales in the Ward New Homes development have inched up from two in January to three in February to three already in March.

St. Clair said that in addition to BRAC-related buyers, she's also seeing local residents looking to move up. She said many have been spurred to test the market out of a sense that "if we're not at the bottom, we're extremely close."

She said some of her recent buyers have been able to sell their homes after a relatively brief time on the market.

At Vale Meadows, St. Clair said, her company has sold most of its existing inventory of high-end townhouses. In three weeks, she said, Ward will begin building a new unit of three dwellings. "There's clearly more optimism out there," she said.

But Kenneth Wenhold, regional director for the Houston-based Metro Study real estate consulting firm, said there's good reason to view both the numbers and anecdotal accounts cautiously. He pointed to both a large margin of error in the federal statistics and to stubbornly high inventory levels in much of Maryland.

According to Wenhold, the market for new homes cannot get back on track until the inventory of homes on the resale market has been reduced.

He said that while the real estate in Northern Virginia has "turned the corner" - with a 40 percent increase in resales between February 2008 and last month - Maryland still has a hefty supply of existing homes for sale. He said that Northern Virginia has a 5.8-month resale supply on the market, close to the level needed to jump-start homebuilding, but that Maryland has a 10.7-month supply.

That gap suggests there will be a three- to six-month lag between Northern Virginia's new-home recovery and Maryland's, he said.

Also sounding a wary note, Basu said recent hints of improvement might not say much about the market's fundamental strength.

"My sense is that it is a combination of seasonal [factors] and the seductive power of increasingly low mortgage rates," he said.

Basu said low rates might entice some who have been on the sidelines to buy, but he suggested the pool of such buyers is limited by the reluctance of mortgage companies to lend to all but the most creditworthy borrowers.

"There's a limited inventory of buyers with sufficient borrowing power in this economic market to drive the housing market ahead in anything more than a marginal fashion," he said.

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