Builders Report Better Buyer Traffic in January

Has the housing freeze begun to thaw?

In January 2009, the Olson Company of California notched its best sales performance in seven months, selling 27 homes in seven communities. “People are finally starting to believe that yes, it might actually be a good time to buy a house,” says Scott Laurie, president and CEO of the Seal Beach, Calif.-based builder, which specializes in urban infill.

In Texas, Telfair, a 2,018-acre Newland Communities development outside of Houston, garnered 28 sales in January 2009, which is two more than it did during the same month last year. Would-be buyers are also touring Cinco Ranch, Newland’s 7,600-acre community located near Houston’s big oil and gas firms, with nearly 2,200 people walking Cinco’s village of more than 30 model homes, according to Jennifer Taylor, vice president of marketing for Newland’s central region.

And in the Washington, D.C., area, Craftmark Homes went from approximately 10 net sales in December 2008 to 22 sales in January 2009, which represents a return to its two-year average sales rate of 20 homes per month. “In February, we’ll do that well or better,” predicts Kenneth Malm, Craftmark’s president. And no, such sales numbers are not a result of the change in government that occurred Jan. 20. “That’s a nice talking point, but I’ve never seen much movement from that. [The inauguration of a new president and administration] is not really meaningful” in terms of sales, according to Malm.

But something definitely seems to have changed for many builders.

In Omaha, buyer traffic between October and December of 2008 “was at a standstill” at Hearthstone Homes, says David Vogtman, vice president and chief sales officer at the Nebraska builder. “I’d never seen anything like that here.” During the first five weeks of 2009, however, Hearthstone’s traffic rose to levels 10% higher than 2008, and even with 2007 and 2006, which were undeniably better years. “I think [customers] are starting to turn the corner,” Vogtman says. “They’ve been saving money and see that it’s a good time to buy a house.”

While those buyers have been saving their pennies, builders have been overhauling floor plans and pricing to ensure their product appeals to those recessionary buyers who return to the market. In Texas, Holiday Builders is introducing a new product line with more choices as far as home size and layout. “We do find that people want as many rooms, but perhaps smaller,” says Michelle Smallwood, vice president of sales at the Melbourne, Fla.-based builder. “We’ve redesigned to meet [those] needs and looked at our standard feature offerings. While we’re doing all this, we’re controlling costs … so that we can still offer the best value for the dollar.”

Pricing matters tremendously in this market, where conforming loans through FHA are the most available mortgage product and jumbo loans will add significant (and unwelcome) cost to an otherwise-affluent buyer’s home purchase. During the housing boom, the Olson Company sold homes for as much as $1.2 million, a figure that’s just a memory today. Laurie, in fact, attributes the company’s recent strong sales to lower interest rates and his company “finding the right price point. All the homes in our communities are now priced at or below $500,000,” which would be considered entry-level in California. In Compton, Calif., Olson’s winning price range is $200,000, and in Northern California, between $300,000 and $400,000. “This is getting people off the fence,” Laurie says.

More affordable pricing seems to be working in less costly areas as well. In Houston, Newland opened eight new models in late 2008 and early 2009 at Cinco Ranch, highlighting new homes priced as low as the $160s. The national developer has done the same in Austin, adding another product line that also starts in the $160s, according to Taylor.

Not every market is experiencing signs of life, however. In Chicago, “this week is probably the worst I’ve ever seen,” says Buz Hoffman, looking at a market report that indicates just 20 sales across 141 developments by multiple builders in the Chicagoland area. Incentives are useless. “Nothing’s working,” says Hoffman, president of Lakewood Homes in Hoffman Estates, Ill. Mortgages are extremely difficult to obtain. “The fallout rate is huge,” he says, referring to buyers who must cancel sales contracts because they can’t get financing. Hoffman can’t get his standing inventory—currently 15 homes—sold. “People ask, ‘Have you sold your inventory?’ I say, ‘Yes! Three times!’”

Hoffman and others say the discussions in Congress regarding a housing tax credit and mortgage-rate buy-downs are only contributing to the sales stalemate. “Everybody’s in a state of paralysis until these bills get done,” Hoffman says. “Buyers don’t know what to do. Banks don’t know what to do. Builders don’t know what to do.”

There’s a percentage of buyers who are waiting to see what the final stimulus package will look like, agrees Vogtman. “It’s almost hurting us now, but if the $15,000 tax credit doesn’t have to paid back, that could be huge for us,” says Vogtman, whose customers told mortgage brokers they weren’t interested in the temporary $7,500 credit passed last summer “because they didn’t trust themselves to pay it back,” he says.

In Ohio and Kentucky, the Fischer Group is attempting to soothe buyers’ economic worries and capture their sales traffic with a new promotion. “The people we are seeing are seriously considering buying a house and have a genuine desire to move,” says Brian Fannin, Fischer’s marketing director. “That’s being countered, though, by their fear that they won’t be able to sell their houses or keep their jobs.”

So this week, the Crestview Hills, Ky.-based builder began offering a program that offers buyers some financial protection if they buy a new Fischer home. According to Fannin, Fischer will automatically purchase a new insurance policy for new contracts from a “four-star insurer.” The policy will kick in after a vesting period following the closing; if a buyer gets laid off, Fischer will cover up to six months of mortgage payments.

Despite the uptick in traffic, though, the foreclosure problem remains a significant obstacle to many builders seeking sales. In Las Vegas, which has been ravaged by mortgage defaults, Pageantry Homes recently suspended its sales, and according to Director of Sales and Marketing Larry Fodor, likely won’t start selling again until “the root of the problem”—foreclosures—has been addressed. (Treasury Secretary Timothy Geithner yesterday said he would soon have a plan for dealing with the foreclosure crisis.)

“Housing started this, and until we fix housing, we’re going to continue in the downward spiral,” predicts Fodor, who blames banks for worsening the housing recession. He says banks are putting foreclosed homes “that have been trashed” back on the market and that they are failing to maintain their foreclosures, which is “destroying the value” of neighborhoods.

Like Lakewood Homes’ Hoffman, though, Fodor doesn’t see much cause for hope among lenders—just “mass confusion. They don’t know what their next move is.” Or even where to start. When he meets with lenders each week, Fodor says he can’t help but chuckle when they complain about the number of foreclosures in communities where they are trying to close homes.

“Well, Mr. Banker,” he says, “some of those homes are yours.”

Alison Rice is senior editor, online, at BUILDER magazine. Senior editors Pat Curry, John Caulfield, and Jenny Sullivan also contributed reporting to this article.

Learn more about markets featured in this article: Chicago, IL, Las Vegas, NV, Austin, TX, Houston, TX, Washington, DC, Los Angeles, CA, San Francisco, CA, Cincinnati, OH, Palm Bay, FL.