SINGLE-FAMILY HOME CONSTRUCTION has dropped by 4 percent in Atlanta in a year, and the pace of home sales there is about 11 percent below that of late 2005. Selling prices are flat, and inventories have swelled to eight months' worth of sales.
It's the moment Rick Stein, CEO of Suwanee, Ga.–based Touchstone Homes, has been waiting for.
“I consider this a lucky point in time for us because we have prepared ourselves for this opportunity,” says Stein, who has developed lots and built homes in suburban Atlanta for 23 years. “We've been the beneficiaries of good times, but we will be a beneficiary of this, too.”
Stein's $84 million firm is poised to buy as much land as possible at the deflated prices that accompany a building slowdown, adding to its store of 2,000 lots in Gwinnett, Hall, Forsyth, Douglas, Cobb, Barrow, and Fulton counties. In fact, the builder/developer aims to grow at an “extreme” pace by buying land and other builders, says Stein, who predicts his firm will build 1,000 homes a year by 2010. It closed on 273 homes in 2006, and Stein estimates the company will sell more than 500 this year. While he's at it, Stein intends to open in a secondary Southeastern market by year's end.
Bracing Stein's confidence is his balance sheet: In 2003, Touchstone Homes closed on 191 homes as it tweaked its product in anticipation of the start of its growth spurt. Closings dipped to 167 the following year, but the firm's net profit percentage almost doubled. It invested some of that money bolstering its own infrastructure, increasing its staff by 30 percent and enlisting employees in a new “opportunity for improvement” program that rewards them for suggesting new profit-making opportunities or cost-cutting steps—to the tune of $6,250 to the staffer with the most good ideas in a year. Meanwhile, it opened a 5,000-square-foot, Tuscan-themed design studio and beefed up marketing and branding of the Touchstone Homes name, and watched as gross profits rose and costs fell.
SURVIVING THE SLUMP Still, the builder of mid-priced single-family homes and townhomes has not skirted the slump: Over the past year, notes Domonic Purviance, a market analyst with housing market research firm Metrostudy, Touchstone Homes has “been hit significantly.” He says the same about all builders along Atlanta's fringes, as a healthy portion of buyers around the perimeter are out-of-staters who relocated to Georgia after cashing in when prices spiked on the homes they owned in Florida and elsewhere. Lately, though, those would-be Georgians have had trouble selling their out-of-state homes, so fewer are moving in.
“Atlanta is not a bubble market,” says Purviance, who explains that the double-digit appreciation that fueled markets such as Miami, Washington, and Boston skipped over the Gate City of the South, “but we're impacted by markets that have experienced a bubble. So in certain areas of Atlanta, you can buy a big house on a big lot on the fringe for a lower price.”
But many builders aren't as financially healthy as Touchstone Homes, suggests Stein, who expects the downturn to do-in some of his smaller competitors. When it does, he'll be there with offers to buy. “We've basically been holding our fire power for this moment,” he says.
“The future of Atlanta is extremely bright. This [slowdown] is simply a correction. We will deal with that problem appropriately, but our strategy is growth. I'm bullish.”
Dealing with the downturn means reducing inventory, scaling down the size of homes, and cutting construction costs, notes Stein.
Learn more about markets featured in this article: Atlanta, GA.