Homebuilders who just a year ago were mired in financial woes, putting projects on hold or drowning in inventory are inching back into Maryland's new-home market.Though sales of new single-family homes in the U.S. have shown solid gains over the summer and supply has decreased, builders say today's market is a far cry from the boom years. Credit for builders to buy land and put up homes remains in short supply. And rising unemployment and mortgage troubles are holding back consumers. Still, builders are positioning themselves for growth, expecting an upswing in demand by next year and fearing being left behind.National luxury builder Toll Brothers, which in August reported its first quarterly increase in signed contracts in more than three years, is actively seeking land.Los Angeles-based builder KB Home has resumed plans to build in Maryland and is rolling out a new design of energy-efficient homes with flexible floor plans priced to compete with foreclosures and resales.And local builder Caruso Homes, forced into a bankruptcy last year with debt of more than $100 million and hundreds of empty lots after signed buyers couldn't get loans, has emerged from Chapter 11, ready to build again. Caruso, an Anne Arundel County-based builder, worked through the bankruptcy to satisfy the demands of multiple banks and creditors and emerged last month a scaled-back version of the company that was building about 200 homes a year four years ago."We're at the point where we're spending 100 percent of our time working on selling houses and getting ready to start building again," said president Jeffrey Caruso, who founded the company in 1986. "We sold a couple last week, and will have those under construction in 60 days."Improvement in the resale market has given Maryland's new-home market a boost, said Ken Wenhold, director for Maryland and Virginia for Metrostudy, a national real estate consulting firm that tracks market trends. Over the past six months, new-home contracts in the state have jumped 20 percent compared with the same period last year, he said."A tightening of the resale market has finally pulled people off the sidelines," including those who, over the past few years, have delayed plans to move up to a larger home, he said.Much of the interest can be attributed to the $8,000 first-time buyer tax credit in the federal stimulus package, said John E. Kortecamp, executive vice president of the Home Builders Association of Maryland."I'm hearing from folks that are getting a relatively significant uptick in sales over the prior year," he said, though sales are well below levels of 2006, and building permits are down this year through August, to 5,283 units, compared with 6,497 in the same period in 2008.That uptick in demand, along with Maryland's historically strong job growth, has builders looking at the market, some for the first time, to make land and lot acquisitions."We're seeing more activity in terms of builders purchasing land and lots," Wenhold said. "Builders have the decision to buy lots now to maintain a presence in a core market. Builders are coming to the realization that the market is coming back, and we need to fill our pipeline."You have multiple builders all reaching the same conclusion at the same time, and there are only so many lots out there," Wenhold said.KB Home, which had lowered expenses and shed inventory during the downturn, stopped building altogether in the Mid-Atlantic in late 2007. But all the while, it hung onto land options in suburban Maryland and Virginia markets, said Vince DePorre, regional president.Now, the company is in the early stages of planning for new, single-family and townhouse communities in Upper Marlboro and Waldorf, both in Prince George's County, that are designed to be affordable for first-time buyers, he said. The Open Series homes, which the company rolled out nationwide in March, are billed as "affordable, flexible and energy-efficient," giving buyers a choice of adding or subtracting bedrooms, multiuse spaces and storage areas. Though prices for the Maryland communities have not been announced, they will be designed to compete in the market, DePorre said."A lot of submarkets in the area have become very healthy, with inventory coming down and prices stabilizing," DePorre said. "First-time buyers who were previously priced out are now coming back to take advantage of the return to affordability in the housing market."Toll Brothers, too, is seeing improved sales in all its Maryland communities, including in Howard County, where it just bought land, said Doug Shipe, the builder's Maryland group president. (The company said it is not ready to disclose details about the Howard County property or plans for that site.) In addition to Howard, the company is evaluating potential land acquisitions throughout the Washington and Baltimore suburbs, Shipe said, "to see which are good matches for Toll Brothers."Builders are benefiting from lower land and lot costs to some degree, but "they are not the significant discounts you find in other markets," Wenhold said.Kortecamp estimated that prices are down as much as 30 percent from their peak a few years ago in some cases."And that's a big factor, that there are perceived bargains to be had right now," he said. "There's an anticipation that there's going to be a significant need for new housing in the not-too-distant future."The credit crunch is affecting national, publicly held builders to a lesser degree, Wehnold said."National builders have the deep pockets that allow them to take advantage of these opportunities, and national builders will write down land and lots internally to have a competitive advantage," he said.A survey of National Assocation of Home Builders members released Monday showed that nearly two thirds of single-family home builders are stymied by a severe lack of credit for housing production, including less credit availability and more pressure on borrowers with outstanding loans. But those findings are probably more representative of nonpublic builders who rely on commercial banks, as opposed to the public companies that can raise capital by issuing debt or selling shares or rely on lines of credit, said Dave Ledford, senior vice president for housing finance and land development at NAHB.It's a different scenario from several years ago, when smaller, local builders, such as Caruso Homes, a single-family-home builder, had no problem getting land purchases financed. The builder saw rapid growth in 2005 and 2006 and by 2007 was constructing homes in about 20 communities in Maryland, Virginia and Delaware. The builder also was working with 2,000 more lots, on which it had options or was bringing through the zoning process. The company had planned to develop more than half of those lots and sell them to other builders and build on the remaining lots. Caruso's homes were priced in the $500,000 to $700,000 range."There was high demand and banks were eager to support these kinds of programs," Caruso said. "We were making a lot of money on home building and covering all the costs on the lots."But by 2006, buyers began to drop off or lose their financing; the slowdown worsened the next year, and "there were no longer the lines" when a new community opened, he said. By early 2008, Caruso's lenders began reappraising the properties at lower values, which accelerated loan payback provisions.Through the Chapter 11 filing in June 2008, Caruso worked with the banks to help sell some of the hundreds of lots or finished houses and to finish incomplete homes, many of them in Prince George's and Charles counties, and at discounts of up to 30 percent. Investors bought some of the properties and agreed to sell some lots back to Caruso in the future. The builder now has model homes and is selling in a 55 or older adult development on the Eastern Shore and two communities in Prince George's County.The builder also was able to repurchase lots from some of the investors for as much as $100,000 less than its original cost and will build homes similar to ones built before the Chapter 11 filing that will sell for less as well, starting in the mid-$300,000s. Caruso said sales have improved since buyers have begun to find it easier to sell existing homes to purchase a move-up home."It's still a challenging market, but houses at the right price are selling," he said. "Our business plan includes growth, but the number of communities we're building in will depend upon financing and the pace at which this market starts to come back."
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