- The Washington Times - Monday, October 31, 2005

Comstock Homebuilding Cos. Inc. says it can outlast what real estate analysts describe as a “softening” of the Washington region’s home building market.

“We do not believe that there is softening of the Washington-area home building industry,” said Bruce Labovitz, Comstock’s chief financial officer. “To the contrary, we believe that demand for new and resale homes is related to job growth, which remains very healthy in the area.”

Nevertheless, slowing home sales and the sliding stock value for the Reston company suggest the region’s housing boom has peaked.

Comstock’s stock (Nasdaq: CHCI) has fallen about 37 percent in the past six months. It closed yesterday at $16.60 per share, up 33 cents, or 2 percent.

The company tries to appeal to customers whose desire to purchase homes will withstand fluctuations in the market.

“Our primary target markets are first-time home buyers, early move-up home buyers and first move-down buyers,” Mr. Labovitz said. “Our inventory today is more concentrated on condominiums and town homes than on single-family homes.”

In addition to converting apartments to condominiums, the company buys land and builds homes on it to sell.

Comstock, founded in 1985, is scheduled to report its third-quarter earnings next week. It has forecast earnings of 80 cents per diluted share.

In the second quarter of this year, it earned $3.06 million, or 26 cents per diluted share, on revenue of $39.9 million. One year earlier, it earned $3 million, or 16 cents per diluted share, on revenue of $31.1 million.

The number of home sales peaked in May and has fallen by about half in Washington and surrounding areas, such as Arlington, Fairfax, Loudoun and Prince William counties, according to the Greater Capital Area Association of Realtors. It also is taking real estate agents about 30 percent longer to sell a home.

At the same time, rising interest rates are making home buying more difficult. Rates are up a full percentage point in less than a year to an average of 6.15 percent this week for a 30-year fixed mortgage rate, according to Freddie Mac, or the Federal Home Loan Mortgage Corp.

“We have seen a tightening of affordability, which has caused buyers to reevaluate what type of product they can afford,” Mr. Labovitz said. “There has been a shift in the demand of first-time and early move-up buyers toward condominiums.”

Any weakening of the market is hitting Comstock’s competitors equally hard.

Last week, Reston-based home builder NVR Inc. reported quarterly earnings that fell short of Wall Street’s projections. NVR is the region’s biggest home builder by market share.

Todd Vencil, home building analyst at Richmond-based financial firm BB&T; Capital Markets, agreed that any decline in the Washington home building industry is temporary.

“It appears to me the Washington-area housing market is adjusting to a level of long-term equilibrium from the somewhat frenzied recent state,” said Mr. Vencil, whose firm has an investment banking relationship with Comstock.

Washington home prices have increased about 6 percent in each of the past four quarters, nearly twice the 3.2 percent national average, Mr. Vencil said.

He said he expects the Washington market to revert toward the national average, leaving plenty of opportunity for companies such as Comstock to continue growing.

“Their long-term strategy is very sound,” Mr. Vencil said. “There’s a lot of growth built into it.”

One of Comstock’s biggest challenges will be making the jump from a small outfit to a major player in the Washington-area market, Mr. Vencil said.

“Going from a small company to a bigger company is going to require a fair amount of management expertise and attention,” he said.

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