December 11, 2009 / 10:07 PM / 10 years ago

North Carolina beckons home builders

NEW YORK (Reuters) - For the biggest U.S. homebuilding companies, devastated by the worst housing downturn in decades, there is a silver lining: North Carolina.

Workers construct a house by developer KB Home in Gilbert, Arizona in this file image from October 20, 2009. REUTERS/Joshua Lott/Files

During the boom years, builders focused on the bubble markets of Florida, Nevada, Arizona and California, while North Carolina was largely ignored.

But now D.R. Horton Inc (DHI.N), Lennar Corp (LEN.N) and NVR Inc (NVR.N) are taking a second look at the southeastern U.S. state, home to a burgeoning biotech sector, a big bank and world-class universities.

“The publics (publicly traded home builders) and larger regional and national builders see some opportunity here to not lose money, which is really the name of the game right now,” said Scott Sokoloski of privately held homebuilder Atreus Homes in Charlotte.

Only Pulte Homes Inc (PHM.N) responded to a request for an interview.

Sokoloski sees more interest from public builders in Charlotte and Raleigh, the state’s major housing markets, now than he did six months ago.

“We’ve seen upwards of 40 percent price adjustments (price cuts) in new homes, which sounds horrifying,” Sokoloski said. “But when you look at Florida, at Phoenix, at Vegas, where there were 100 percent price adjustments, it’s just staggering.”

Builders like Charlotte for its cheap land; Raleigh for its recession-resistant academic economy.

CHEAP LOTS

North Carolina did not escape the downturn. New home sales in 2009 were 55 percent down from their 2006 peak in Raleigh and 70 percent lower in Charlotte, according to data from local market analyst Bernard Helm.

Charlotte, the corporate home of Bank of America Corp (BAC.N) and Wachovia, which was bought by Wells Fargo & Co (WFC.N), was afflicted by layoffs.

The bigger publicly traded builders are gaining share in the shrinking Charlotte market by discounting their inventory “and the smaller guys can’t compete,” Helm said. The big builders garnered 35 percent of the market in 2009, up from 27 percent at the peak in 2006, he said.

As local shops shutter, the public builders survey a field littered with half-built subdivisions and opportunity in the city of 630,000.

The average lot in Charlotte cost $40,636 in 2009, down 41 percent from its high, Helm said.

“They’re building up a war chest of lots at extremely low prices,” Sokoloski said. “If you have cash, you can certainly get some great deals.”

D.R. Horton, Lennar and KB Home (KBH.N) began buying in the late summer, said Jody Kahn of John Burns Real Estate Consulting, which surveys local housing market contacts monthly.

KB’s lots cost about $33,000 each, a 38 percent discount to the price 18 months ago, say Kahn’s contacts. Horton has purchased about 115 lots, also at a deep discount, and is building in anticipation of near-term sales, stopping construction at the frame stage.

A TALE OF TWO CITIES

In Raleigh, the state capital, home prices defied the slump, rising until relatively recently on the strength of its academic and bureaucratic economy.

Average 2009 prices are down from 2008’s prices, by 3.5 percent, Helm said, adding in the second and third quarter of this year, the rate of decline in the number of sales started to slow.

“Compared to other markets in the country, that is a very soft landing,” Helm said.

The city of 356,000 has drawn even NVR, whose land-light business model has become the envy of the industry.

Known in Raleigh as Ryan Homes, NVR opened its first community, Hilliard Forest, in the third quarter of 2009.

Meanwhile, Lennar is hosting a holiday-themed grand opening celebration on Saturday at its Tyron Place community, complete with Santa and real snow.

Lennar has continued to spend on advertising in Raleigh, as have No. 1 builder Pulte Homes and M/I Homes Inc (MHO.N), while their private competitors have reduced or cut such expenses altogether, said Kahn of John Burns Real Estate Consulting.

Pulte’s overall advertising is down, spokeswoman Caryn Klebba said. The Carolinas remained relatively stable as the U.S. market declined at a rapid pace, she added.

Reporting by Helen Chernikoff; editing by Leslie Gevirtz

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