By H.M. CAULEY
For the Journal-Constitution
Published on: 12/29/05

For years, Jenny Pemberton has headed to Chamblee to shop at the city’s famous antiques shops.

But in the next few months, she’ll be calling the city home as well as a favorite shopping destination.

The graphic designer is one of the first buyers planning to move into the Lofts at 5300, a mixed-use complex of retail and residential in the downtown district.

“I like the style of a mixed-use area,” she said. “I’ve seen it in several other areas, like the new Midtown and Virginia-Highland areas, and I thought it would be great to be able to walk to shops and MARTA. Potentially, more businesses will come in because it’s such a cool place.”

One of the first mixed-use projects to lure buyers back to Chamblee was Heritage Lofts, a project that opened in 2002 close to City Hall. It’s now joined by the Lofts at 5300 across the street from the MARTA station.

“MARTA is a huge draw,” said Diana Rowe, vice president of Charter Real Estate Services, which is developing the Lofts.

Being so close to public transportation was a key factor for Pemberton, who works in Buckhead.

But so was getting the latest housing features that buyers want.

“I got a one-bedroom unit with a study and two full baths with almost 1,000 square feet,” said Pemberton of her first home. “And it has 10-foot ceilings, granite counters, cherry cabinets, stainless steel appliances and a stackable washer/dryer.”

The Lofts feature two- and three-bedroom condos with 700 to 1,400 square feet. The complex comes with a heated pool, concierge, covered parking, club room, fitness center, rooftop deck, tennis court and three interior courtyards with water features and wireless Internet connections. Prices start in the low $100,000s and climb into the mid $200,000s.

With move-ins not expected to happen for a few months yet, the property already has 30 percent of its 242 units under contract.

“It just shows,” said Rowe, “that the live-work-play concept so close to public transportation is what people want.”

Builders must raise home prices or see profits fall

By JULIE B. HAIRSTON, MICHAEL E. KANELL
The Atlanta Journal-Constitution
Published on: 12/10/05

The rising cost of building materials is putting pressure on builders to choose between earning lower profits and charging higher prices for new homes.

Prices for such materials as concrete, gypsum, PVC and steel have been rising steadily during the past two years, driven by global demand and a long-running boom in the U.S. housing market for new homes.

Hurricanes Rita and Katrina prompted even more dramatic spikes through the fall, as higher energy prices made it more expensive to get goods from port to market.

And with rebuilding in storm-devastated areas just beginning, many housing experts believe that the true impact of the hurricanes on construction materials’ prices won’t be realized for months.

As demand for building materials increases in the Gulf Coast region, other areas of the country, including metro Atlanta, could feel the pinch of higher prices, said Michael Carliner, chief economist for the National Association of Home Builders.

“Hurricane Andrew, which had destroyed the most homes of any storm up to that time, demolished about 28,000 houses,” Carliner said. “Katrina destroyed more than 200,000 homes.”

Oil prices are down dramatically from September’s crests, but they are no longer falling and remain above last year’s levels.

Rising oil prices not only have made oil-based products such as carpet more expensive, they also have jacked up the cost of material deliveries, said Terry Russell, chief executive officer of John Wieland Homes and Neighborhoods.

The expense of concrete, too, is wearing on home builders, Russell said. Not only are home foundations dependent on concrete, the piping systems under the homes use it as well.

Pressure on margins

The increased price of construction materials is squeezing builders’ margins. Russell estimated that materials constitute about one-third of total building costs.

What builders and developers now must decide is how much of that cost to pass along.

“Where we can recapture these costs, we do,” said Casey Hill, president of the Georgia division of Pulte Homes, Atlanta’s largest home building company. “But it’s hard to recapture dollar-for-dollar in the current market.”

The challenge is especially difficult for small builders.

Covington home builder Ross Mundy said materials account for more than half of the price tag of a Ross Mundy Custom Home, so there’s no avoiding some effect on the listing. “Costs have gone up, and in turn, we are having to raise our prices about $10,000 to $20,000.”

The prices he pays have jumped 15 percent for carpet, 20 percent for concrete and 30 percent for lumber, just since Hurricane Katrina hit the Gulf Coast in late August.

Builders are struggling to read the tea leaves on an uncertain economic outlook for 2006 as they decide how to cope with their rising costs. Economic experts warn of a potentially dramatic slowdowns in some of the nation’s hottest markets, such as San Diego, Miami and New York.

But locally, housing industry experts expect Atlanta’s Sun Belt location, the absorption of Gulf Coast evacuees and more stable housing prices will keep the market humming.

“In a down market, a lot of locations still do very well,” Russell said. “We’ve done very well here.”

Many builders are taking a wait-and-see approach to pricing new homes.

Atlanta-based Monte Hewett Homes has delayed putting a price tag on many houses until the costs for materials are easier to gauge.

“It may not be until February or March that we see the full change in prices due to Katrina,” said Dina Gunderson, director of marketing for Monte Hewett Homes, which is building and selling about 150 homes this year.

New eye on prices

Some subdivisions have been priced — for now. “Some we are starting in March or April, and we will re-evaluate the pricing after the first of the year,” Gunderson said. “Unfortunately, that has to be factored in.”

This is easier to do in some parts of metro Atlanta than in others. Both location and the style of home factor into builder’s ability to sell.

Homes are built in a place to appeal to a particular set of purchasers with a certain buying power. In a good market, where demand is solid, there’s usually some wiggle room, but shove the price too high and you might disconnect the buyer from the home, Mundy said.

“Location is everything in building,” he said. “As we have to increase our prices, you look at your locations and hope that you did the right thing in building there. So far, we are still selling houses.”

Will the materials costs mean a substantial change in prices?

“It really depends on how drastic the charge is going to be,” Gunderson said. The company’s operations manager “determines each month how much it costs to build every one of our homes. And pricing is evaluated and possibly re-evaluated each month as needed.”

Builders cautious, but sales show unexpected strength

By MICHAEL E. KANELL
The Atlanta Journal-Constitution
Published on: 11/30/05

Signs of a peak in the housing market are everywhere: Mortgage applications are off, fewer potential buyers are looking at houses, the average sales price is falling, and the number of homes on the market has hit an all-time record.

No wonder a survey two weeks ago showed home builders losing confidence.

But forget the gloomy talk, at least for a moment: New home sales took an unexpected leap in October, hitting a 1.4 million-a-year pace, the Census Bureau reported Tuesday.

Simultaneously, the average price of a new home fell, suggesting builders are marketing aggressively. Could it be they are concerned the end of the six-year housing boom is near?

“There has been a little decrease in traffic. But things seem stable,” said Bryan Cohen, president of Suwanee-based Touchstone Homes. “We are experiencing a fantastic fall. Our business plan for the next year is for a substantial increase in building.”

A number of big markets have been so overheated that a cooling must come, experts in the housing industry have said. But Atlanta is usually not mentioned as a danger zone, and many home builders here seem confident that the region will sidestep trouble.

Yet nationally, confidence among home builders has fallen sharply, according to a survey of expectations by the National Association of Home Builders. The NAHB survey, which asks builders to rate their expectations as good, fair or poor, also assesses the traffic of potential buyers. Each of the measures last month declined but remained in positive territory, the NAHB said.

Housing starts fell 5.6 percent last month. Building permits — a clue to future construction — were down 6.7 percent, the biggest fall in six years. The supply of new homes was 20 percent higher than a year ago, according to the Commerce Department.

What has worried economists about the housing boom is the way price increases have outpaced fundamentals like income growth. When speculation drives the market, the result can be a “bubble,” they say, and bubbles eventually burst.

In contrast with the frothier markets, prices in Atlanta have advanced steadily, not spectacularly. And that is largely because Atlanta — unlike, say, San Francisco — has been adding new homes by the tens of thousands each year.

Status of Atlanta market

Many builders are betting that it will continue — no matter what the national numbers say. Metrostudy, a provider of real estate data, compiled these stats for the metro Atlanta housing market in the third quarter:

•Atlanta builders put up new homes at a rate of 56,031 per year.

•Construction was up 13.4 percent on the north side of the metro area and 12.5 percent in the south.

•Inventory of unsold new homes is high, but not up dramatically so.

Nationally, sales growth will slow but there will be no crash, said David Seiders, chief economist for NAHB.

“No huge drop is in the cards,” he said. “It’s most likely that we’re engaged in an orderly cooling process that will lead to somewhat lower home sales and production. We’re looking for a 5 or 6 percent decline in home sales next year.”

If there is a danger in Atlanta — the region has repeatedly led the nation in home building — the greatest threat is a glut of homes.

It could happen, but it won’t, said Cohen of Touchstone Homes: As long as the economy expands and Atlanta’s image looks enticing, new residents will keep pouring into the area and buying those homes.

“Atlanta will continue to expand,” Cohen said. “And people need somewhere to live.”

But can they afford to buy a house?

Housing prices have outpaced income growth — and the gap has been growing, according to David Berson, chief economist at Fannie Mae, a federally chartered company that buys mortgages in the secondary market. The last time affordability was this low was 1991, he said.

Affordability the key here

Still, Atlanta remains more affordable than many other markets. Prices have increased faster than median incomes, but not wildly so. “We are still in a great position,” said Dina Gunderson, marketing director for Monte Hewett Homes. “You can still get a lot of house for your money.”

So metro Atlanta builders keep pounding nails.

But as they put up houses, builders nervously glance over their shoulder at mortgage rates.

After sliding to four-decade lows, mortgage rates this year have risen modestly — despite a dramatic increase in short-term rates, such as the prime rate. But even that small increase can be linked to the “traffic” in potential home buyers, said Steve Palmer, chief financial officer for Bowen Family Homes in Duluth.

“This is the first time in three or four years that we are seeing rates tick up in the fall. Things have definitely slowed. Our traffic is off by about 20 percent.”

The average for a 30-year fixed-rate mortgage nationally two weeks ago was 6.26 percent, down slightly from the week before, according to the Mortgage Bankers Association. An updated figure is due today.

A year ago, the average rate was 5.64 percent.

Most fixed-rate mortgages rise or fall along with the yields on 10-year Treasury bonds — which recently have slipped. For builders, any dip in rates is encouraging, a sign that there will be more financial fuel for potential buyers.

Most economists say that, sooner or later, higher rates will arrive. And builders say there is a point at which rising rates might stifle the market. Not the small increases of the past few months, but something more dramatic, Palmer said. “After 7 percent, we’d have to re-evaluate. After 8 percent, we’d have to reconsider our business plan.”

Right now, that plan is for growth, he said. “This year we will build about 1,200 homes. Next year should be about 1,500.”

But he will be watching mortgage rates closely — not just the level, but how fast they might rise.

Solid economic growth can overcome a leisurely rise in rates; if people have money and confidence, they will keep buying, Palmer said. “If it goes from 6 to 7 percent in 30 days, that’s a problem.”