Builders adapt
 to smaller market

By Michelle E. Shaw

The Atlanta Journal-Constitution

Deep in metro Atlanta’s 2009 housing market wrap-up is this number: About 4,400 new homes were built during the year.

It’s not an error. Even amid a market that has forced many builders to the sidelines, those hanging on continue to find enough demand to justify new starts.

“There are people who don’t want a resale home; they want a new home, and those are getting scarce,” said Eugene James, head of the Atlanta division of the research company Metrostudy. “Unless we start to build, we will run out of new homes.”

Including those built before 2009, more than 14,000 new homes sold last year, which took inventory down to low levels, he said. And though the 4,400 starts is a shadow of the 40,000 to 60,000 built during the boom years, it is a good sign for Atlanta’s recovering housing market.

Or is it?

John Wieland, chief executive of John Wieland Homes and Neighborhoods, said 2010 will be the first year Atlanta won’t be his biggest home-building market. Most of the 523 homes his company plans to build this year will be elsewhere, he said.

“I am surprised and disappointed, but the Atlanta market isn’t as strong as others in the Southeast right now.”

No one knows how much of the old volume will ever return, but it’s clear the game has changed dramatically for the surviving players.

There was a time in metro Atlanta, in 2005 and 2006, when new homes built on spec were snapped up by buyers who could get 100 percent financing. The feverish demand gave builders potent pricing power.

But after the bubble started to deflate in late 2007, it was too late for many builders to adjust. Unfinished homes and vacant lots languished. By 2008 financing was tough for builders and buyers alike. Homes didn’t sell as quickly, and prices that seemed affordable just months before were too rich for suddenly cash-strapped buyers.

Many small to midsize builders went under. Large, and often publicly traded, builders were able to stay afloat, but not by doing business as usual.

No more subdivisions are built on speculation. No more granite countertops, crown molding and hardwood floors as standard finishes in entry-level homes.

Spec building is still going on, but it is more cautious, said Kevin Clark, the metro area division president for Atlanta-based Beazer Homes.

“Nobody is building for the sake of building,” he said. “Now it’s about looking closer at the right floor plan, on the right lot with the right finishes. We are much more conscious of that now.”

In 2009 Beazer built 150 homes in 10 metro area communities, Clark said. The majority were in south Fulton, Forsyth, Cobb and DeKalb counties, and most were on spec, he said.

The biggest three new home builders in metro Atlanta last year were, in number of units, Michigan-based Pulte Homes, Texas-based D.R. Horton and Atlanta-based Legacy Communities, according to Steve Palm, president of Marietta-based SmartNumbers.

The bulk of homes built across metro Atlanta last year were in Forsyth, Gwinnett, Cobb, Cherokee and south Fulton counties, according to James at MetroStudy.

Palm’s data varies slightly, with Forsyth still at No. 1 but Fulton in second followed by Gwinnett, Cherokee and Cobb. Forsyth was the clear leader, Palm said, because of less expensive land and cheaper taxes than adjacent northern arc counties, along with good schools.

Permits for more than 800 single-family homes, about 18 percent of the 4,400 built last year, were purchased in Forsyth, according to the county’s planning and development office.

Still, it was one of the slowest periods in three or four years, said Jeff Chance, director of the county’s Planning and Development Department.

Wieland said building quality homes for less money and at a faster pace is the main strategy in this environment.

“One of the major changes is there are very few homes above $450,000 built on spec these days,” said Wieland, whose company built more than 200 homes in the metro area in 2009. “And that’s because of financing. But what we’ve found is people don’t want a smaller house; they want a less expensive house.”

Kevin and Donna Opela, who bought a new home from Bowen Family Homes last year, said they found the process much different from what they expected.

The builder was very interested in selling the home instead of holding out for a better offer, Kevin Opela said.

“It was very much the opposite of what we thought would happen,” he said. “We bought a spec home and for much less than we likely would have paid for it a year or so earlier.”

The current pace of single-family construction will help the market rebuild its inventory in a sensible way, Metrostudy’s James said.

“Given time, I think we can see starts get back up to 30,000, which is a good place to be, but we’re a few years out on that,” he said. “But there should always be building on some level in Atlanta because there will always be people moving here.” Palm agrees, saying 30,000 homes annually should be the ceiling.

James said the area’s colleges and universities will continue to bring people into the market, and any improvement in the job market will strengthen demand.

“Many of the college students will come and want to stay,” he said. “So if we have jobs to keep them, we’ll need houses for them to buy.”

How we got the story

Residential real estate reporter Michelle E. Shaw obtained data from Metrostudy about the number of homes being built in metro Atlanta and wanted to know who was building in this housing market and where.

She interviewed city and county officials, housing experts and builders across the metro Atlanta area.