Building slump of ’06 continuing, experts say

Homebuilders feeling slowdown in bottom lines

‘‘Some experts are saying we’ll reach the bottom later this year,” Kortecamp said. ‘‘But you never know when you will see the bottom until it’s over. If we reach it this year, then 2008 could be a strong year.”

Many builders are feeling the slowdown in their bottom lines.

Lennar Corp. of Miami, the largest U.S. homebuilder in terms of revenues last year, experienced a 73 percent first-quarter plunge in profits from a year ago to $68.6 million. Revenue declined last quarter by 14 percent to $2.8 billion.

Lennar’s communities in Maryland include Meadowland Estates in Bowie, where prices start at $659,990, and Seneca Ridge in Hagerstown, where prices start at $219,990.

‘‘Market conditions are very difficult across the country,” Lennar CEO Stuart Miller said in a recent conference call. ‘‘The industry is continuing to be challenged to adjust home prices and land values as well.”

D.R. Horton of Fort Worth, Texas, another large homebuilder that sells in Maryland, reported that net income slid by 85 percent from a year ago to $51.7 million in the quarter that ended in March. Homebuilding sales declined by 26 percent to $2.6 billion, as orders and closings saw significant drops.

‘‘Frankly, our sales were slower in this quarter than we anticipated,” Horton CEO Donald Tomnitz said during a conference call last week.

Like many builders, Horton is using sales incentives such as price cuts to lure customers. That practice contributed to its gross profit margin on homes declining under 18 percent last quarter from more than 25 percent a year ago. The builder also has trimmed its staff to about 7,300 employees, down from some 10,000 a year ago, officials said.

Other builders that sell in Maryland that saw income and revenue drop last quarter included NVR of Reston, Va., and Hovnanian Enterprises of Red Bank, N.J.

NVR, which sells under brands such as Ryan Homes, posted a net earnings decline of 36 percent to $84.8 million. Hovnanian, which sells under brands such as K. Hovnanian Homes, reported a net loss of $54.6 million, compared with earnings of $84.1 million a year ago.

The losses are a little misleading, as the market was so strong for about five years before the slump began some 18 months ago, said Dan Ryan, president and owner of Dan Ryan Builders of Frederick.

‘‘It was just a matter of time before it cooled off,” Ryan said.

For the last few years, Dan Ryan Builders has made Builder Online’s annual list of the 100 largest homebuilders ranked by closings. The company’s revenues were $285 million in 2005, about 34 percent more than in 2004, according to the industry publication. One of the largest builders based in Maryland, Dan Ryan has constructed homes in Maryland, Virginia, Pennsylvania and West Virginia.

Sales dropped some last year from 2005, Ryan said.

‘‘As a company, we’ve adapted. We’ve learned to work in a much different market,” he said. ‘‘The first quarter this year has been real good for us. I’m certainly optimistic for the rest of the year.”

Some positives:New-home orders up

Not all of the recent news in this industry has been negative, however.

NVR reported that new-home orders increased in the quarter by 8 percent overall and 18 percent in the mid-Atlantic region. NVR’s communities in Maryland include the Reserve at Crown Pointe in Gaithersburg, where townhouses start in the $600,000s and single-family homes are priced at more than $1 million.

While new-home permits issued across Maryland declined by 20 percent to about 19,000 last year from 2005, some counties saw increases, according to figures from the Maryland Department of Planning. Charles, Prince George’s, Queen Anne’s and Baltimore counties experienced double-digit increases in approved permits last year.

The first two months of this year has seen a 37 percent decline in such permits across Maryland from a year ago, but Montgomery and St. Mary’s counties recorded double-digit increases.

Some local builders are taking on ambitious projects. Bozzuto Homes of Greenbelt, one of several subsidiaries of The Bozzuto Group, plans a 58-acre mixed-use development in Howard County called Shipley’s Grant. Almost 400 townhouses and condominiums are planned, as well as 40,000 square feet of retail, 18 acres of open space and office buildings. The first homes are expected to be delivered next year.

While some areas of Maryland may be doing fine, there is no question the overall market is soft, Kortecamp said.

‘‘It’s definitely a concern,” he said. ‘‘Most people are waiting for the weather to improve. We typically see improvement in the warmer months through October.”

Some smaller builders are turning to more remodeling projects, as that segment continues to be strong in Maryland, Kortecamp said. And some larger builders are taking on more commercial development projects, which is a stronger market than residential, he said.

Affordable housing remains big issue

Despite the slowdown, median home sales prices have continued to climb, although more slowly than a year ago, as affordable housing remains a key concern. The median sales price of existing homes sold in Maryland reached $302,750 in March, less than 1 percent more than a year ago, according to the Maryland Association of Realtors.

Montgomery County continued to post the highest median sales price at $430,000 in March. The housing slump has helped increase the demand for affordable housing, said Maureen Sweeney Smith, a spokeswoman for Montgomery Housing Partnership.

The Silver Spring nonprofit buys and rehabilitates affordable housing units. The partnership has more than 1,000 units of affordable rental properties and almost all are rented, Smith said.