Housing slump forces builders to adapt
Tux Terkel
Maine Sunday Telegram
PORTLAND, Maine — The foundation is in and workers have begun framing the first home in Gray Goose Estates, a new subdivision in Westbrook. It’s a 1,400-square-foot cape with a base price of $204,000, roughly $50,000 below the median home price in Cumberland County. That price point is no accident. The builder, Windham-based Custom Built Homes of Maine, had initially planned “move-up” homes, with garages, paved driveways, gas fireplaces and other extras that would sell for $270,000 or so. But as the housing market slowed and potential customers had trouble selling existing homes, the builder redesigned the project to make it more affordable for first-time homebuyers. The strategy is working. Five of the 20 homes in the first phase went under contract quickly. Cutting amenities is one way southern Maine homebuilders are weathering the national downturn. They’re also offering buyer incentives, writing contracts contingent on the sale of existing homes and lowering prices. Some, like Custom Built Homes of Maine, are staying away from price segments already burdened with too many “for sale” signs. “We’re trying niches that keep us out of the $350,000 to $400,000 market,” said Ron Smith, the company’s owner. Builders such as Smith say these adjustments really just reflect a correction, a return to a more-stable construction environment after a few hectic years. But housing-start figures for 60 towns in southern Maine, collected by Construction Data New England, show that the brakes have come on fairly hard. Through the end of October, the number of new building permits dropped 27 percent from the same period last year — 1,515 compared with 2,069. They’ve fluctuated since 2002 but have stayed above 2,000 until this year. Average prices, meanwhile, continued to climb — at least until recently. They’ve risen from roughly $163,000 in 2002 to $225,000 today. Those figures don’t include land or utility costs. Real estate markets are notoriously local. Maine, with its low population growth, rarely sees the overbuilding and speculation common in, say, Florida or Arizona. Those regions helped send the industry in a swoon last month that saw home building fall to its lowest level in six years, down 14.6 percent, the government reported. To move inventory, a survey by the National Association of Home Builders found, 55 percent of builders were offering incentives; 42 percent paid closing costs, and 26 percent were picking up points on mortgages. Similar practices also are in play in Maine. Kasprzak Builders of Waterboro develops condominium communities in Wells, Kennebunk, Gorham and Brunswick. The company typically builds 60 units a year and has had to make adjustments to stay on track. Some examples: Overall prices have been cut about 5 percent this year, according to Bob Georgitis, the company’s vice president. At Signature Pines in Brunswick, where an end unit starts at $255,000, Kasprzak also is tossing in a two-year membership to the adjacent Brunswick Golf Club. The company also has offered two free tanks of heating oil. The condo communities are aimed at retirees and people who are downsizing. Either way, customers typically have homes to sell, and that can be a slow process these days. “It wasn’t a problem in the past,” Georgitis said. “But now, people are unwilling to sign contracts until they are near closing.” Kasprzak has responded by agreeing to some contingency sales, asking for deposits up to $5,000. If the customer’s existing home doesn’t sell within a set period, they have to put down more money to hold the contract. In some parts of the country, a large percentage of potential buyers are walking away from contracts when their homes don’t sell, leaving builders with half-finished homes. That only happened once this year to Kasprzak, Georgitis said. The volatile market is requiring a delicate balance. Kasprzak is only moving ahead with new construction in Wells, where it’s putting in foundations before the winter freeze. It wants to be ready if demand picks up in early spring but doesn’t want to have too much money tied up in speculative building. The renewed focus on affordable housing seems to be helping modular home builders, who cater largely to first-time home buyers and empty nesters. Modular homes typically cost 10 to 15 percent less than comparable stick-built dwellings, according to Gordon Hamlin, president of the Modular Home Builders Association of Maine. The average price of a home, including land, is roughly $250,000. Hamlin said members appear to be having a decent year and are encouraged by the number of contracts for spring construction. At his company, Friendship Homes in Hollis, sales are 10 percent ahead of last year. Hamlin said he’s trying to hold prices but will negotiate appliance packages and other options to close a deal. “We’re just not advertising it,” he said. A major factor that influences new construction prices is land costs. At Gray Goose Estates, the builder has owned the land for years. The property also is served by public sewer and water, which cuts thousands of dollars off the purchase price. The project also includes 52 condominiums, which increases density and lowers overall development costs. By taking advantage of these savings and trimming amenities, Custom Built Homes of Maine is offering basic ranch homes for $191,640 and Colonials for $213,104. These prices appealed to Angel Stevens, who wanted to be closer to family and work. She and her husband recently sold a house in Buxton for $204,000 and are watching their new home rise in Gray Goose Estates. To make the deal work, Stevens priced her Buxton home low enough so that it sold right away. Then she bought a basic Cape for roughly the same price. The final cost will be somewhat more, however, because the couple decided to add hardwood flooring, a pantry and window dormers on the front. “We still get a three-bedroom, one-and-a-half bath house in Westbrook, and it’s a good price for us,” she said. Ron Smith said he’d like to build more starter-home communities if he can find reasonably priced land close to city services. Looking ahead, Smith said he expects the market to pick up next year in southern Maine, as long as interest rates and unemployment remain low. But buyers will remain very price conscious, he said, and builders will need to respond. “It’s going to be very competitive, no doubt about that,” he said. This entry was posted on Tuesday, December 5th, 2006 at 1:14 pm and is filed under Housing News. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site. Edit this entry.