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VOL. 123 | NO. 51 | Thursday, March 13, 2008

Numbers Show Homebuilding Nightmare in Shelby

By Eric Smith

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Connie Neal likens her homebuilding company to a fairytale. At a time when builders' woes are splashed prominently in headlines each day, the activity at Affinity Homes LLC plugs along.

Neal, who owns the Cordova-based company with her husband, Jimmy, said Affinity has even hired new employees while many homebuilders slash payroll or close shop altogether.

Though Affinity's not alone in its good fortune - plenty of local homebuilders are making ends meet - there are scores of horror stories and continuing sagas along with the occasional fairy tale.

And the latest numbers paint an especially nightmarish picture of homebuilding in Shelby County.

Residential home sales by builders plummeted 62.3 percent in February compared to the same month last year, a devastating dropoff in any market, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

Builders sold just 79 homes during the month, down from the 211 sold in February 2007 and down from the 99 sold this January, the data show.

Bad dreams

February's total sales by builders hit $19.8 million, a staggering 70.7 percent decline from the $67.5 million they registered in February 2007 and a 17.8 percent decline from the $24.1 million this January.

Likewise, the average sales amount took a beating compared to last year, although it registered a slight improvement from the first month of the new year. This February, builders averaged $251,147 per sale, down 21.5 percent from the $320,002 in February 2007, but up 3 percent from the $243,750 this January.

Barry Watson Homes LLC of Eads was the county's top individual builder in terms of sales count with six home sales totaling $1 million, for an average of $172,180 per home.

It was followed by four builders with three sales apiece: Phil Chamberlain of Chamberlain & McCreery Inc. (totaling $569,800), Compass Pointe Homes LLC (totaling $509,350), Bowden Homes Inc. ($375,460) and Reeves Williams Builders ($358,606).

Bowden was the county's top seller in February 2007 with 14 sales, while Compass Pointe led the way this January with 11 sales.

The most glaring statistic gleaned from the Chandler data is how few builders made a sale in February compared to the same month a year ago. Last February, 90 builders registered at least one sale. This year, just 35 builders managed a sale and only 16 sold more than one home, leaving a lot of inventory in the hands of builders who are already strapped.

Now more than ever

For the companies that are still standing, Neal said the key is diversity of product and location, a tack that numerous builders have touted in difficult economic times.

Now in its third incarnation - created from the former Summit Homes and Summit Group companies - Affinity has thrived by introducing a wider range of homes into the marketplace, everything from the $180,000s to the $900,000s.

The company also develops land, which lowers overall costs. And it has expanded into booming Fayette County, which is giving Affinity a broader base to withstand a downturn in housing cycles.

Reaching out to a larger cross-section of potential buyers has proved fruitful, Neal said.

"Each week it varies as to where the traffic is going: the lower, the middle, the higher, the average ones. It just depends," Neal said. "People are looking everywhere, which is good. That's real good with all the publicity we've gotten as far as people being told, 'Don't go; it's a bad time to buy.'"

Survival of fittest

It's definitely not a bad time to buy: With low rates, motivated sellers and slashed home prices, it can be a good time to buy for people with the means to do so. But the tightening of mortgage guidelines and national credit crunch have kept some potential buyers from getting qualified. And that's made it a more difficult time to buy.

That trend has hurt homebuilders perhaps more than any industry. When builders went overboard on speculative construction following the housing boom of the early- to mid-2000s, they wound up with too much inventory that sat empty - and expensive - as consumer confidence waned.

Early this month, the nation's confidence in the economy sank to a mark of 33.1 on the RBC Cash Index, the lowest level since the index's debut in 2002.

Doug Collins, president of the Memphis Area Home Builders Association (MAHBA) as well as owner of real estate company Prudential Collins-Maury Inc. and building company Sovereign Homes LLC, said he believes the lower number of housing starts will help the market eventually rebound.

"Traffic has picked up some, and builders are continuing to reduce inventory without starting replacement inventory," he said. "I think we're going to see numbers that reflect fewer new home sales - at least though the first half of the year - than last year. But that's going to be because there's going to be less inventory."

Perhaps the spring will bring better traffic to homes, and some of that traffic will result in sales. Until then, the biggest story in homebuilding is survival of the fittest.

PROPERTY SALES 105 193 8,028
MORTGAGES 120 239 9,024
BUILDING PERMITS 192 445 17,512
BANKRUPTCIES 27 69 5,228