- The Washington Times - Friday, February 15, 2008

Sales of new homes in the Washington area were down 18 percent last year. Home builders are being hit by the same market forces that have slowed the existing-home market — an abundance of inventory and a shortage of interested buyers.

Those problems in the existing-homes market factor into builders’ continuing troubles in 2008. Existing homes, also known as resales, made up 82 percent of the region’s home sales last year. Also, with nearly 50,000 existing homes on the market these days, builders are facing a lot of competition for their products.

Builders have responded to the changes in the market by taking out fewer permits for new-home construction. There were 23,000 permits issued last year for single- and multifamily construction. That’s a sharp decline from 2006, when 27,500 permits were issued, and from 2005, when builders took out 36,500 permits.

“All the public builders, the national builders who rely on volume, they were building at an unprecedented rate during the boom years,” says Rick Genuario, vice president of the Fairfax chapter of the Northern Virginia Building Industry Association, and managing partner of the Genuario Cos.

“Those large builders got hit the hardest when the market slowed. The sales volume dropped — crashed on them, really,” Mr. Genuario says.

Only 16,500 new homes were sold in 2007. The average annual sales between 1991 and 2006 was 26,000.

Considering how much slower last year was than the typical year, some in the industry expect 2008 to be better than last year was. However, because the tail end of 2007 was so slow, even optimistic predictions are being revised.

“Last year we were predicting that 2008 would come back, but we’re tempering that now,” Mr. Genuario says. “However, the low financing really helps. People are seeing that now and realizing that prices are low and aren’t going any lower. They’re saying, ‘If we want a deal, we should act now.’ ”

Because new homes sold more slowly last year, builders often cut prices to compete. This was especially necessary because resale prices fell in most jurisdictions, making them more attractive to buyers.

In Montgomery County, for example, sales of new condominiums were down 50 percent last year, and the median price per square foot went from $432 to $379 — a drop of 12 percent.

In Fairfax County, new condo sales dropped 71 percent. That was the largest drop in sales for any home type in any area jurisdiction.

Not surprisingly, builders were asking less for condos in Fairfax County last year. The median price per square foot was $336, compared to $386 in 2005 — a drop of 13 percent.

“Fairfax County is less of a suburban market now; it’s a more urban market,” Mr. Genuario says. “It’s mature, without a lot of open spaces. The demand is going to be for infill, low-volume but high-end. Big builders have gone to Culpeper and outlying areas where land is less expensive and it’s easier to get permits.”

Despite the severe drops in Fairfax, neighboring Prince William County saw condo sales rise 32 percent last year. Price may have something to do with this. When you can buy a condo in Prince William for $196 a square foot, versus $336 in Fairfax, it has to make a buyer think.

Condo sales were also up in Prince George’s County, by 64 percent. They were much more expensive, however, at $443 a square foot. That was entirely due to the strong sales seen at National Harbor on the banks of the Potomac. Sales of town homes and single-family homes in Prince George’s were down last year, just like most of the region.

What lies ahead for builders in 2008? Much depends on that large existing-homes inventory. Whittling away at that will help sellers of both new and existing homes.

Builders also can hope that resale prices don’t fall any further, which can put downward pressure on new-home prices.

“We’re not anticipating much change in 2008,” Mr. Genuario says — “looking for adjustments in expectation from buyers. Prices are at bottom now. You can get good deals, but you’ve got to be realistic. It’s the people who really need homes who are getting back in the market.”

With local economists forecasting continued job growth in the coming year, the demand for housing in the region remains.

However, with so many homes already up for sale, it may take several years for the housing market to truly bounce back.

“The big builders are laying off people and pulling out of the market — they are going to wait until things come back,” Mr. Genuario says. “Who knows what will happen after the election? We generally see a positive response to the turnover, no matter whether the Democrats or Republicans win. We think that’s going to help things.”

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