There are many variables that we all know affect homebuilding production in positive and negative ways.
Some of the negative ones are large amounts of continuing foreclosure homes entering the resale market, tougher credit standards for potential new home purchasers and, for residential developers and builders, lack of equity (or negative equity) in existing homes that makes it tough for people to purchase move-up homes, and high unemployment and underemployment.
Some of the positives are historic low interest rates, increasing pent-up demand for new homes relative to population growth and long-term trends, costs to own are now favorable relative to renting, and nascent consumer confidence and employment improvements.
In the Fredericksburg region, we have more positives and fewer negatives than in almost all the other metro areas in the U.S. thanks to the high levels of employment from the federal government. We also have a relatively tight supply of resale homes in MRIS available. We have seen a bottom in home prices and some small movement upward. Ask anyone who has tried to purchase a reasonably priced home listed in MRIS in the past six months and they will tell you that the seller received multiple offers.
The most important factor in determining demand for homes in the Fredericksburg region in 2012 is job growth. Job growth creates new home demand and trumps other important factors like interest rates and affordability relative to existing homes. There will probably continue to be modest employment growth in our region in 2012. BRAC transfers seem to have ended but getting specific information about what to expect in the near future from BRAC has eluded me and everyone I know who tries to determine this.
Stafford County has been by far the strongest new homes market in the Fredericksburg region. This will continue. Outlying markets like Caroline, Orange, and rural Spotsylvania will continue to be weak. King George is also slow but has some steady demand from Dahlgren. Spotsylvania has limited closer in water and sewer lots developed and also struggles significantly with extra commute times relative to Stafford. Home prices bear this out. So do lot prices. For example, in the new Colonial Forge community, lots are under contract to public builders for about $150,000 each for Spring 2012. New lots coming online in Pelhams East in Spotsylvania this spring are under contract for about $105,000 each to Ryan Homes.
Our company is taking the following actions to try to grow and compete in Fredericksburg in 2012:
We have learned that we are in the housing business and not just the new home business. Rental home demand is strong and we think this will continue. We just began building the first of 37 rental townhomes in the Belmont community in Caroline County. Union First Market Bank (the lender) and local developer Frank Sealy wanted to see progress on some of the few remaining finished lots in Belmont. By working with them to create rental homes, we can stabilize property values, complete homes on otherwise stubbornly vacant lots, and get construction going in an area where there is very little demand for new townhomes. We are actively looking for more rental townhome locations.
We are completing a new model home in Idlewild subdivision in the city of Fredericksburg. From it we expect to sell homes at $500,000+ in Idlewild and other upscale Spotsylvania communities such as Fawn Lake, Bloomsbury Farm Estates, and Breckenridge Estates where we have acquired home sites at favorable prices and can pass on the great values to our buyers. We expect to sell about as many homes, 45, as we did in 2011, but larger ones at significantly higher prices. Part of our strategy is out of necessity because the many national and public builders we compete with are purchasing the closer in water and sewer lots being developed in locations with 20+ at prices that do not work for our business model.
We continue to build in many locations in the Hartwood area of Stafford County on 3 acre + home sites from our model in Richland Forest off Rt. 17. We plan to relocate the model home from there to Oakley Farms off Poplar Rd. in 2012 as we wait for 45 more home sites to be developed in Richland Forest in 2013.
*To read the full article featuring Atlantic Builders CEO, Adam Fried, please click here!