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New Housing is one of the more ‘interesting’ topics of discussion in the post-bubble real estate world. As the country continues to plow through the distressed inventory and banks continue to figure out ways NOT to lend, homebuilders sit mostly idle wondering when demand will return to ‘normal’ levels.
This day is not near.
That being said, the overall malaise within homebuilding does not mean that no one is building. There are and will continue to be many examples of strategic successes mostly around a more intelligent brand of housing. The new normal is GREEN and homebuilders that have embraced responsible home building techniques are succeeding a higher rate than those that do not. Likewise, builders that elect to build in developments with high walkability are also experiencing success.
New Homes For Sale
The Bungalow and the Craftsman Styled home with GREEN elements is the new normal.
Overall, the marketplace morphed quickly post-bubble as the McMansion movement of 2004-7 (massive house, every imaginable upgrade, maximum LTV, small lot) ended (and quite poorly for many) and a sense of responsibility set in. In a very short time frame, buyers began to reject the idea that BIGGER meant better and decided that BETTER meant better. This shift in ideals manifested itself in a demand for lower price points, nicer finishes, flexible floor plans and more suitable mortgage products. When all of these factors merge, you end up with a nicely appointed, custom designed ‘Craftsman’ styled home built using GREEN techniques. This movement is long overdue.
While the movement towards GREEN building techniques represents a fundamental shift in the marketplace, the presence of bank owned lots is ultimately the reason pricing will stay low for the foreseeable future. There is no financial reason to develop a subdivision in any suburban marketplace and there will not be until the excess lot inventory is absorbed. As this is being written, some market segments (288 Corridor in Chesterfield, Eastern Henrico, New Kent, Powhatan and King William) still 3+ years (or arguably longer) of inventory that has yet to be absorbed. Until the market balances itself, new homebuilding will continue to lag and in some areas, be almost non-existent.
West Broad Village is selling at a rate 3-4x the market in 2011 due to its proximity (walkability!) to entertainment and shopping and excellent interstate access.
Towards the end of the bubble, Richmond was beginning to see the ‘Super-Regional’ builders enter the market. While Ryan Homes (HQ in Northern Va.) has been in Richmond 20+ years, the majority of the homes built in Richmond were built by builders from Richmond for most of our Metro’s history. The Toll Brothers and Pulte’s of the world sporadically built here but never really gained a presence. Some of the other national builders bought a presence here by acquiring a local brand (Orleans Homebuilders bought Parker-Lancaster and Centex bought Teal), but these groups are now largely defunct and the days of a local builder with local financing have returned. As we move into the new market, expect to see the homebuilding landscape dominated by the mid-major local builders (StyleCraft, Eagle, Main Street Homes, Lifestyle Builders) as well as a slew of newer smaller builders, many times born from the ashes of the large builders that went BOOM in 2007-2009.
Overall, it is an excellent time to build a house as the builders are motivated, interest rates make financing almost free and the lot prices are below reproduction costs.
