Older homebuyers offer a silver lining

By Michael E. Kanell

The Atlanta Journal-Constitution

A surprising sound punctuates a steamy summer afternoon in Woodstock: the pounding of a hammer.

The new home market is seemingly dead in the water and credit is still tight, but Windsong Properties is building. Five houses are under construction at the development dubbed Somerset, one of them a “spec home” for which there is not yet a buyer.

The gamble on new construction is based on faith in demographics, said Steve Romeyn, managing partner at the Woodstock-based firm, which has three other metro area developments. “In our case, there is a strong demand. We are building in a special niche.”

That niche: older buyers, better known in the homebuilding game as “active adults” 50 and up.

In the gloom of a deep recession, it is a niche that has attracted a number of competitors.

For instance, Jim Chapman Communities has six active adult subdivisions under way in metro Atlanta with a total of nearly 500 lots, according to Thomas Olson, the company’s chief financial officer.

Roughly 135 homes are built, sold and occupied. Contracts on 20 more are pending and 25 others are being built on spec.

Potential buyers are among tens of millions of aging baby boomers. “There is something very encouraging about our business model,” Olson said.

Prices of Jim Chapman homes range from the low $200s to mid-$400s. Homes in Somerset, which targets the “discriminating 55-plus homebuyer,” are in the middle of that range — $280,000 to $360,000 for three-bedroom homes.

Metro Atlanta’s suburbs are crowded with houses in those price ranges, many new, many for sale and many sitting unsold for a long time.

The metro market peaked in mid-2007 and average prices fell steadily for nearly two years afterward. While there have been tentative signs of the market hitting bottom, many months’ worth of supply is on the market in most areas and price ranges.

In Cherokee County, which includes Woodstock, recent data show about a 12-month supply of new homes and a nearly 16-month pool overall, according to Coldwell Banker.

That surplus would seem to argue for builders to stay on the sidelines — and, in most cases, they have.

Permits for new building fell by roughly 60 percent between 2005 and 2008, said Steve Palm, president of SmartNumbers, a Marietta-based research company.

Sales of “active adult” homes dropped, too. The October 2007 bankruptcy filing by Levitt & Sons, a major developer of such communities, stopped two big projects north of Atlanta and one in Peachtree City.

But while the housing boom was largely fueled by aggressive lending to first-time or “move-up” buyers, the target market for “active adult” homes is more resilient.

Buyers are not only older, they typically have more savings to use for a down payment or even a cash purchase. They are retired or not far from it. They aim to downsize and cut maintenance. Some are moving, not in pursuit of career advancement but to be closer to offspring.

“This is totally a different animal than the rest of the market,” Palm said. “This type of product has fared better than the overall market.”

The first baby boomers turn 63 this year, the youngest hit 45. As they age, they are expected to increasingly cash out investments and savings, move out of large homes and back toward family.

“They are the people who have the wealth. Those are the people who have the equity,” Romeyn said. “The demographics just get better and better. It is a huge wave. Now, that doesn’t mean they are all going to move into a new house.”

But builders only need interest from a healthy fraction since the boomers are more than 75 million strong, according to the Census Bureau.

The majority of buyers at Somerset move from out of state, something the builders depend on, Romeyn said. “If we didn’t have out-of-town buyers, this would be a different picture.”

Still, it’s not exactly a return to the go-go years. A bit fewer than half the 58 homes planned for Somerset are now occupied.

The sharp downturn last fall took its toll.

“Last August, we wrote four contracts, and that’s pretty good,” Romeyn said “But starting in October, three of those canceled.”

The recession had begun at the end of 2007, but with the financial industry meltdown at summer’s end in 2008, credit virtually vanished.

That was a potential game-stopper for builders. Most do not have the deep pockets or the cash flow to keep building without a lender’s help. The ones still building may have solid relationships with lenders or partners. They may be borrowing from banks that hold mortgages on the land and want to get it off their books.

Whatever the circumstance, chances of getting a loan are better when lenders think the home will be sold.

But even builders who’ve successfully mined the active adult niche need help from the broader economy. Many potential buyers have to be able to sell their current homes at acceptable prices, for instance. Many can’t.

“That has probably been our number one reason for not selling a home,” said Olson at Jim Chapman Communities. “We need first-time buyers, who buy homes from people who become second-time buyers who buy homes from people who become our customers. It is really like dominos.”