October conditions for the nation’s home builders were bleak at best before the U.S. stock market tanked and financial markets nose-dived around the world. Price decreases on new homes and affordable mortgage credit are offering little solace to builders as the market for new homes has eroded even more, thanks to a glut of cheaply priced foreclosures appealing to bargain-seeking buyers.

But builders keep trying, promoting affordability to would-be buyers. “You can’t beat the prices and interest rates right now,” says Chris Schoonmaker, vice president of sales for S&A Homes in State College, Pa. “But I tell people that prices are not going to stay low forever."

They say that, despite all the headlines about the credit crunch, mortgage financing is available. “Getting a mortgage isn’t the problem for our customers; it’s selling their existing home,” says Mike Collins, Cincinnati area manager for Hills Communities of Cincinnati.

So, for Collins and many other builders, the problem is in the hearts and minds of buyers, whose lack of consumer confidence has been well-documented.

But builders don't need a survey to tell them that buyer confidence is flagging. Collins said sales traffic has dropped 80 percent in October compared to what it was in August and September. “I’m sorry to be so negative, but business just stopped,” Collins told BUILDER. He said Hills Communities has lowered its base prices some, but not so much that it compromises the value of homes it has already sold in the same market. And over the past few months, Hills has also increased the number of free options it offers. “But as you know, this isn’t about money; it’s about emotion and the consumer’s confidence,” Collins said.

Buyer traffic and sales have fallen in October compared to the previous month. In the Southern California counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, and Ventura, for example, Hanley Wood Market Intelligence (HWMI), said weekly buyer traffic for new-home builders went from 20,109 visitors in mid-September to 15,132 visitors in mid-October. Sales were also down month-over-month, with 327 new sales recorded the week of September 14, and 208 sales recorded the week of October 19. (HWMI is owned by BUILDER's parent company.)

Some industry experts had hypothesized that builders would see a boost in September sales as buyers rushed to take advantage of down-payment assistance (DPA) after the housing rescue bill eliminated seller-funded DPA as of Oct. 1. Many public builders even ran national television commercials advertising special sales to take advantage of the final days of DPA.

Private builder Dragas Companies, of Virginia Beach, Va., also heavily promoted the final days of DPA. While buyer traffic was disappointing, company president and CEO Helen Dragas said, the company “successfully generated a sense of urgency” and was able to meet its sales projections.

The loss of down-payment assistance, though, has affected sales at  Arlington, Texas-based Choice Homes. In the builder's Dallas/Fort Worth division, DPA was used for 35 percent of Choice’s closings, according to Max Larseingue, Choice's vice president of sales. “And about half [of the buyers] needed it.”

Bowen Family Homes of Duluth, Ga., did see a bump in sales, said company CFO Stephen Palmer. But just because people came in and signed contracts, does not mean Bowen will have more closings from its sales. “Our cancellation rate jumped due to the inability of people to qualify under the tightening mortgage guidelines,” said Palmer, who added that October’s sales and traffic counts were the worst for his company in the past 10 years.

Venture Homes president and CEO Bob White sounded a similar note. Describing his home market of Atlanta, Ga., as “shocking and depressing,” White noted that sales and traffic were the worst he’s seen in 26 years.

Prior to October, Venture was averaging about one sale in each of its 12 communities per month in 2008, or 12 sales monthly. October, though, has brought only two sales. “Before the Wall Street ‘meltdown,’ I had a little optimism for end-of-year sales,” White said. “Since then, new sales have been non-existent. Our sales for 2008 had been low but consistent at about 40 percent of 2007."

In Florida, where the national news has highlighted rising existing-home sales (largely due to foreclosures), 2008 sales have been better than 2007's figures, according to Rosemary Messina, vice president of sales and marketing at ICI Homes in Daytona Beach. She said ICI saw little difference from September to October in terms of sales, with the worst month so far being July.

Unfortunately, the majority of builders interviewed for this story believe conditions for their industry and (and the economy) will get worse before they get better.

“There are definitely some economic clouds on the horizon that we expect to affect housing negatively,” said Sheldon Moore, director of communications for Kimball Hill Homes, of Rolling Meadows, Ill. Kimball Hill filed for bankruptcy protection in April, but remains in business.

BUILDER senior editors John Caulfield and Pat Curry contributed reporting to this story.


Learn more about markets featured in this article: Dallas, TX, Los Angeles, CA, Riverside, CA, Virginia Beach, VA, Atlanta, GA, Deltona, FL.