IN new home party ends

http://www.indystar.com/apps/pbcs.dll/article?AID=/20070610/LOCAL/706100395/-1/LOCAL17

A downward trend in Indianapolis' home-building market is fueling scores of job cuts and discounts that, in some cases, risk devaluing entire neighborhoods.
The slide also could weed out some of the big tract builders that sell about three of every four new homes in the nine-county, $1 billion market. The builders, which employed more than 22,000 in good times, could become disenchanted with the drop in single-family building permits to 7,500 this year, the fewest since 1991.
"We rode a good wave for a long time," said Ed Hackett, Indianapolis division president of Dallas-based Centex Homes. "It's going to weed out the competition. We'll eliminate some players."
The sales downturn has hurt not only builders, but also the web of contractors and service firms that cater to the huge new-home market. The slowdown also takes money out of the economy as builders cut inventory and expenses. With fewer home buyers, home furnishing retailers and building suppliers also feel the sting.
Home construction "is a stimulus to everything else," from material suppliers to finance companies and utilities, said Patrick Barkey, research economist for the Miller College of Business at Ball State University.
Single-family building permits totaled more than 12,000 in 2005. From January through March of this year, building permits filed for new homes fell 35 percent from a year ago, to 2,359.
New-home sales are down not only in Indianapolis, but nationally. Reasons include a drying up of cheap credit -- blame it on hard times in the industry that makes loans to borrowers whose credit woes disqualify them from market interest rates -- and lagging demand from buyers.
They include a once-thriving investor market that bought vast numbers of new homes, many in the South and Southwest, to rent or resell for profit.
Housing is notoriously cyclical, given to booms and busts. In Indianapolis, the slowdown follows a string of strong years dating to the early 1990s.
The half-dozen or more national tract builders in the market, plus local players, are trying to hang on by cutting overhead and turning to price-cutting and promotions to lure the smaller pool of increasingly picky buyers. Some builders are cutting jobs.
Pulte Homes said last month it is cutting about 16 percent of its work force, or about 1,900 jobs, as part of a restructuring. Pulte is one of the nation's leading homebuilders, with 10 subdivisions in the Indianapolis metro area.
Some builders have even cut their prices below what comparable homes in the same subdivision sold for in the past year. That spells savings to new-home buyers, who are the main beneficiaries of the building slowdown, but it worries others.
Patty Torr, a vice president for F.C. Tucker Realtors, said one builder this spring knocked $100,000 off the price of a Northside home it couldn't peddle.
"That's just crazy," she said. "That devalues the whole neighborhood."
Hackett, of Centex, said some builders are slashing base prices -- as opposed to using promotions such as a free basement or money off on a fireplace -- for the first time in years.
"We've had instances where we had to lower our prices," he said, with cuts ranging from $2,000 to $20,000 per home.
Centex aims to sell 650 homes this year. It sold 725 in 2006.
Los Angeles-based KB Homes is building homes in nine Indianapolis-area communities this spring, compared with 17 last year.
"We tried to be realistic" about the market, said KB's division president, Dave Berman. Even so, KB remains "absolutely committed to Indianapolis," he said.
Two locally based tract builders, Gunstra Builders and Davis Homes, have tried other tactics to combat poor sales.
Gunstra has had luck building in urban niche markets, rather than sticking to subdivisions in suburban farm fields.
Its 77-townhouse Monon and Main project in downtown Carmel sold half of the units a month after opening, at prices ranging from $194,900 to more than $400,000, said sales manager Jim Morgan.
"And we haven't given away so much as a microwave," he said.
Davis is active in 22 subdivisions, about the same as last year, but expects sales to fall to 500 to 525 homes this year, compared with 750 two years ago, said President Brad Davis.
Davis Homes has laid off about 30 percent of its staff during the past two years and has gotten back into "on your lot" construction and custom home building as it seeks buyers, Davis said.
"That will be welcome business right now," he said. "We've all had overhead reductions that are very substantial."
Heating, ventilation and plumbing supplier JTB Contractors of Franklin managed to retain its 40 employees by working less overtime and reducing spending on new equipment, said Vice President Derek Baird.
Even so, "sales being down really hurt," he said.
The home building lag means fewer developers locally want to buy farmland or forested tracts to turn into subdivisions, said Corby Thompson, president of Thompson Land Co. in Fishers.
"Anybody looking to sell land, it's virtually impossible," he said.
For the first time in more than 20 years, he said, he's granting wholesale time extensions to builders to fulfill their lot-buying deals in Thompson subdivisions.
"We're going through a cleansing," he said. "I think it was overdue. Land prices were getting frothy. It was just unstable."
At Stock Building Supply, a national lumber supplier with locations in Franklin, Fishers and New Castle, the slowdown has led to layoffs of 100 of its 400 local employees since last year, said sales manager Gary Foltz.
To make up for lower sales to tract builders, Stock's local managers have started selling to builders of small hotels. The firm also is into the do-it-yourself home market.
The Builders Association of Greater Indianapolis said its membership has actually risen 5 percent in each of the past two years, to 1,350, as more builders and suppliers look to use the association's programs to boost sales and learn ways to cut costs.
Even so, among builders locally, "they're all reducing their inventories, reducing their permit expectations," said Steve Lains, the association's chief executive.
"People tend to forget, because housing is such an emotional purchase, that this is still an industry," Lains said. "It goes through boom and bust cycles."