THE BALTIMORE SUN
October 8, 2000, Sunday ,FINAL

Chilling the euphoria Ebb: Home sales are off 10% and building lots are scarcer, but demand remains high, though not for townhouses.

Take a snapshot of new-home sales for the first half of 2000 in the Baltimore metropolitan area and this is what you will see:

Sales down, compared with the same time last year.

Demand remaining high.

The supply of building lots shrinking.

Detached single-family homes replacing townhouses.

Prices continuing to rise.

"The market overall in Baltimore is still 10 percent behind last year , and that is what we thought the market would do anyway," said Anna Pitheon, regional sales director for the Meyers Group, a Washington firm that tracks and analyzes new-home sales. "I don't think anyone is panicked."

The drop in sales comes in the face of two highly successful six-month periods in 1998 and 1999.

In 1998, 5,140 new homes were sold between January and June. In the comparable period in 1999, the number slipped to 4,918 as builders scrambled to meet demand.

The same conditions existed in the first six months of this year as the number of sales dipped to 4,426 units.

"Most builders are concerned. Like 1998, going into 1999, some were happy to euphoric. Now the euphoria has ebbed," Pitheon said. "Despite rising land costs, higher labor costs, higher material costs - they're still able to edge up their profit margins."

Bob Coursey, head of marketing and sales for Ryan Homes, the No. 1 builder in the Baltimore market, said his company's sales were flat, although its market share climbed from 15.2 percent in 1999 to 16.3 percent this year.

Coursey said the only downward "blip on the radar screen" came in May, when mortgage rates inched over 9 percent, causing a pause in homebuying.

"But consumer confidence, especially regarding interest rates, has improved significantly, the slowdown gave us a chance to catch our breath," Coursey said. "I think it gave most builders a chance to catch their breath. It gave subcontractors a chance to catch up a little bit."

The break also helped to shrink the time between contract signing and settlement, he believes.

"We think things are good," said Earl Robinson, Coursey's counterpart at the Ryland Group Inc., the area's No. 2 builder with 6.6 percent of the market. "The market remains strong ... and we're seeing an increase in the number of sales per community over last year.

He predicted Ryland "will be much larger than we are today six months from now."

He has good reason to be optimistic. The top two best- selling detached single-family developments in the Baltimore area for the first half of 2000 belong to Ryland.

The first is in the Villages of Winterset, across from Owings Mills New Town. The second is Stone Ridge, a Bel Air community that opened in April and where Ryland already has taken 56 contracts - and the models have yet to open.

"We are getting back to what our core market is, to build a very high quality home at an affordable price," Robinson said.

"We are looking to expand more into Anne Arundel County. We have some projects coming into Perry Hall and two new single-family projects coming up in Harford County. It's very broad. ... We look for where we can build for good value in the market."

Like Stone Ridge, Robinson expects Ecker's Hollow, a new development of 102 single-family homes off Route 175, in Columbia to be a swift seller.

Robinson said the homes will be priced in the low $200,000 range and "there just isn't anything in Howard County at that price," he said, adding that sales won't begin until later this year.

Although Robinson said that more projects are coming through the pipeline for Ryland, it doesn't mean that builders are having an easier time securing land, particularly at a time when the movement for no-growth and slow-growth is gaining political momentum.

"This really isn't the market where you will build it and they will come," said Pitheon of the Meyers Group. "This is a market where it is a long, arduous process to get any number of lots brought to market. There is a squeeze."

The number of months it takes a Baltimore area builder to exhaust his supply of building lots - a key barometer - has shrunk over the years.

Pitheon says builders generally like to have an 18- month supply. In June 1997, builders in the Baltimore area had a 22-month supply, but by June 2000, the supply had dwindled to 12 months.

"I don't think we are critical right now," Pitheon said. "If it drops down to nine, I would be very concerned."

The diminishing supply of building lots has forced builders to look elsewhere for land.

"In our Baltimore region, we now slide over into Pennsylvania, which we did not do a year ago," said Ryan's Coursey. "We now slide over into Calvert County, which we did not do a year ago. We slide over on the other side of the Bay Bridge, which we did not do a year ago.

"We are looking at nontraditional markets. We are looking at nontraditional locations and actually are having success with that."

Coursey said Ryan has had success with Southhampton, a rancher community in Bethany Beach, Del., and is opening Ridgefield Station, which will feature detached single-family estate, traditional homes and townhouses in Calvert County.

"We are looking at areas where the demand, the depth of the market may not be that great as a Harford or Baltimore or Anne Arundel or Howard county ... but there is more supply and less competition," Coursey said.

Bob Ward Homes, a Harford County success story, is venturing into Carroll County for the first time, opening the biggest project in company history: Manchester Farms, a 308 single-family development on 196 acres. Sales in the first phase of 45 homes, with prices starting in the $160,000 range, are expected to begin this month.

Another Bob Ward project - White Birch Estates, with 48 single-family homes - is being developed off Main Street in Taneytown.

"Everybody is still desperately looking for land," said Linda Veach, senior vice president for Bob Ward Homes, which dropped from being the No. 3 builder in the area to No. 5 in the first six months of 2000.

Veach said Carroll County, with so many parallels to rural Harford County, was a natural expansion for Bob Ward Homes, and also helped solve the problem of competing against itself in its home area.

But it was also done as a part of "risk management" in view of the public's growing desire for slower growth in Harford County.

"If there is ever a moratorium put on in Harford County, which a lot of people want, it would shut us down. We would be out of business," Veach said. "A lot of people would lose their jobs. Carroll County seemed like a natural progression. And the type of houses in that market are the same as the ones in Harford County."

Fritzi Hallock, president of MarketSmart, a consulting firm used by builders, said: "Politically, those who are in office are finding that their constituents don't want to see new development.

"It is happening in Harford County, it is happening in Anne Arundel, it is happening in Frederick and it is happening in the Washington suburbs as well. People are being overwhelmed by the development that is happening around them."

That is one of the reasons why many builders are forsaking the townhouse for single-family homes.

In the past 20 years, thousands of entry-level townhouses have been built in the Baltimore metropolitan area. Now, many townhouses are less appealing to builders and to politicians interested in lowering housing density.

Two other factors have favored detached houses over townhouses: Builders have higher profit margins with detached homes, and the strong economy has meant more buyers can afford them.

In June 1996, 42.1 percent of all new-home sales in the Baltimore area were single-family detached homes and 43.9 percent were townhouses. This June, 50.9 percent were single-family detached homes, while townhouse purchases dropped to 39.3 percent, according to statistics from the Meyers Group.

In Harford County, where townhouses once popped up like spring dandelions, townhouse sales went from 42 percent of the market in 1996 to 33. 5 percent through the first half of this year.

Five years ago, Veach said, townhouses accounted for almost half of Bob Ward Homes' business, while today it is down to 20 percent. The company has reduced its dependence on the townhouse by design.

"A lot of our competitors with the entry-level townhouses ... went out of business. We just weren't making money doing it," Veach said. "There is just not that much of market for it anymore. I'd like to think that what we are doing is following these baby boomers.

"We sold them their townhouses almost 20 years ago and they were happy with that. Ten years ago, maybe, we sold them their first move-up house. Now we are selling them their executive home. So we are following that critical mass."

Hallock said buyers might be shying away from townhouses because they see "their peers having bought townhouses five years ago, having trouble selling them and getting out with some money.

"There is a soft market there, and it becomes secondary rental housing. Either people are selling for what they bought it for, or they are renting them out ... because they can't sell them."

The product mix of the area's top builders is a telltale sign.

"If you look at the top builders, if you look at Gemcraft Homes, or Patriot Homes, which is up there in the top 10 builders, they are only building single- family homes," Hallock said.

"If you look at how many builders up there whose strength is really single-family homes, that tells you a lot.

"They can do a lot of those sales by hitting different price points in the market. They can build a split-foyer, they can build a small two-story, they can build a large two- story, two-car garage. They can hit a lot of different price points and get volume just like they could if they were to build a townhouse."

And when talking about prices overall for the Baltimore area, builders expect them to continue to climb.

The average sales price for a new single-family detached home in the Baltimore metropolitan area rose 6.6 percent to $257,590 in the first half of this year, compared with $241,547 for the first six months of 1999.

Townhouses rose 6.1 percent to $136,040 from $128,173. And condominiums increased 6.8 percent, rising to $123,267 from $115,398.

"As long as the demand is what it is ... there is really not an end in sight," said Coursey, who added that he expects the economy to stay strong and consumer confidence and interest rates to remain stable. "Every one of those reasons produces higher prices."