The rumors are true: The red-hot housing market is starting to get a little cool, says Ian J. McCarthy.

Even his company, Atlanta-based Beazer Homes USA, which has twice doubled in size since it was spun off from its British parent in 1994, is seeing a slowdown in demand.

LOUIE FAVORITE/AJC Staff (ENLARGE)

Ian J. McCarthy, chief executive of Beazer Homes CEO: 'We've expanded beyond geographic growth by growing by product. We've spread out our portfolio.'

AT A GLANCE • Clickable ticker: BZH • Headquarters: Atlanta • CEO: Ian J. McCarthy • Employees: 4,578 • Business: Sixth largest U.S. homebuilder designs and builds single-family houses for entry-level and first move-up buyers. • Online: beazer.com REVENUE • 2005: $4.9 billion • 2004: $3.9 billion • 2003: $3.1 billion • 2002: $2.6 billion • 2001: $1.8 billion NET INCOME • 2005: $262.5 million • 2004: $235.8 million • 2003: $172.7 million • 2002: $122.6 million • 2001: $74.8 million NET INCOME PER SHARE • 2005: $5.87 • 2004: $5.59 • 2003: $4.26 • 2002: $3.58 • 2001: $2.73 WANT REPRINTS? Our provider can reformat articles, with accompanying photos and graphics. Get more information on custom reprints — and custom plaques.

The cause? Investors who have been financially bankrolling the industry are pulling back; the Federal Reserve has been bingeing on interest rate increases; and the public is more and more sitting on the sidelines waiting for mortgage rates to stabilize.

All of this has resulted in housing starts that fell more than forecast in April and a weakening market.

"At this moment there is somewhat of a slowdown taking place," said McCarthy, Beazer's president and chief executive officer. "It will take two or three quarters to work out."

But if you think McCarthy is sweating bullets, guess again.

While cooler than it has been since the heady days of super-low 5.5 percent mortgage rates just a few years ago, the housing industry is still seeing stronger demand than in prior decades, McCarthy said.

And for Beazer, which builds in 22 states in the Southeast, West, Midwest, central U.S. and Mid-Atlantic regions, that success is coming from many different directions.

Boomers in metro Washington for example, are buying Beazer retirement homes that keep them near the nation's capital instead of forcing them to head for Florida.

Residents in some of the key cities that Beazer serves — including Atlanta — continue to support condo developments that help reduce their commute times to work, McCarthy said. And Beazer has diversified into the luxury market from its traditional entry-level segment during the past three years.

"We've expanded beyond geographic growth by growing by product," McCarthy said. "We've spread out our portfolio."

That helped Beazer, the sixth-largest U.S. home builder, end fiscal 2005 with revenue of more than $5 billion and closings of 18,146 homes. The company had a market cap of $2.3 million, and its shares reached a high of $82.14 on Jan. 11. The 52-week low was $48.57 on May 18, 2005.

'Tremendous potential'

There are more gains to be made, McCarthy said. The company is looking to play a larger role in building for the minority community, which the Joint Center for Housing Studies of Harvard University predicts will make up two-thirds of household growth over the next decade.

"There is tremendous potential there," he said.

The company also is encouraged by analysts' predictions that the top 10 builders will increase their one-quarter share of the market to as much as half by 2010.

But for some analysts, Beazer will have to improve the bottom line in the present before thinking about the future. Many were disappointed when the company pulled back on its guidance earlier this year, predicting earnings would be between $10 and $10.50 instead of $10.50 or more as previously stated.

In a May 2 research report, Wall Street Strategies said: "For the first time we are seeing weakness in the company's backlog, which is one of the reasons management lowered its earnings per share estimate to $10-$10.50 from $10.50 [management voiced supreme confidence just months earlier in its guidance]. Most intriguing was the caveat, which almost sounded like a warning in waiting, that the guidance 'assumes no further deterioration in new order trends.' "

McCarthy acknowledged the tougher road ahead for this year but said the company's fundamentals are sound. He predicts the Fed is at or near the end of interest rate boosts, which should give investors and consumers the confidence to jump back into the market.

"It's psychological," he said. "For the bond market, if they believe the Fed has reached the end, they'll relax. The opportunities are still terrific."