ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, May 12, 1996 TAG: 9605100011
SECTION: BUSINESS PAGE: 1 EDITION: METRO
SOURCE: By MAG POFF STAFF WRITER
THE rising cost of usable land is pushing the price of new homes beyond the grasp of many home buyers, yet construction of new housing is booming in the Roanoke Valley.
Explaining this seeming anomaly is the fact that much new construction is aimed at the "move up" market - people who have earned equity in an existing home and now are ready to step up to a second or third house that's more expensive.
Increasingly, that new house may be a final home for "empty nesters," a market group that often has the money to buy convenience and low maintenance.
Records of the Multiple Listing Service of the Roanoke Valley Inc. show that more than half - 56 percent - of buyers in the Roanoke Valley spend $100,000 or less when they buy homes, both newly built and existing houses.
But there are other ways of viewing the same figures. Steve Strauss of Strauss Construction Corp., one of the valley's largest builders, pointed out that 75 percent of home buyers spend in the range of $50,000 to $150,000. He and other builders are aiming at the upper end of this segment.
There seems to be little reward in providing new homes for the midpoint of that market.
Charles Simpson now knows that. His Charles R. Simpson Inc. recently took four leftover lots from its Spring Grove subdivision near William Byrd High School and filled them with four homes. They are typical ranch-style models, each with three bedrooms, two baths and a deck; yet they are, in Simpson's words, "just sitting" although he reduced the price from $108,950 to $99,950.
The answer to that puzzle, Simpson said, is that house hunters can find similar homes on the resale market for $85,000 to $90,000. "If they find a good house at a lesser price" than his new homes, he said, "it's a good move on their part."
Houses on the resale market, he explained, were built when land was less expensive. "The price of the lot determines the price of the house," Simpson said.
The national guideline, Simpson said, is that the lot with utilities should constitute 20 percent of the final cost of the house. That's a standard that's not always met, however.
Like other builders, Simpson is having a hard time finding suitable sites in the Roanoke Valley and even in Botetourt and Bedford counties. To be suitable, the land should be within a 15-minute commuting distance of the valley and have water service or wells, sewage service or suitability for septic systems and proper drainage.
The tract also must be large enough for construction of developments of at least a dozen and preferably 20 or 30 speculative homes, or those built without a prior sale. Such houses generally are marketed after construction has begun. Simpson said topography is less important here because local residential developers are accustomed to building on hills.
This is in contrast to contractors who specialize in building one house at a time, known as custom building for a specific buyer who signs a contract before construction.
Right now, Simpson is building homes worth $175,000 to $200,000 at Edgemont, another Vinton subdivision. He's also working on a development off Deyerle Road in southwest Roanoke, where homes are priced at $290,000 to $350,000.
Jerry Grubb of Townside Construction Co. said the cost of the land with utilities can represent as much as a third of the selling price of a $200,000 home.
Knowing that, he's not aware of any tracts in the region that would permit him to build houses to sell at $100,000 or less.
Instead, he's building Mallard Lake, where prices range from $235,000 to $400,000, and Hickory Hills off Keagy Road with a range of $200,000 to $325,000. Both are 30-home developments in Southwest Roanoke County.
Land in that area is going for $45,000 to $55,000 for a lot of a third-to a quarter-acre, Grubb said. To build a $100,000 home, he would have to find land for $15,000 to $20,000 a lot. "I could sell a bunch of them" in that price bracket, Grubb said, but "there is no land" to make them possible.
Allen DeWeese of DeWeese Construction Co. said he paid $50,000 a lot for Woodridge Estates at Daleville where his homes will sell for $225,000 to $400,000. At Northview on Plantation Road, he can sell for $129,000 to $169,000 because the lots cost $30,000.
Jack Loeb of Boone, Boone and Loeb Inc. said the best market in the valley is in the range of $100,000 to $110,000, "but that's not possible for us in Southwest [Roanoke] County."
At that level or below, he said, young couples on a tight budget must consider a resale home if they can find one that doesn't need too much remodeling.
Instead, his company is building what he calls "starter homes" at The Groves on Cotton Hill Road. They will sell for $130,000 to $180,000, "unfortunately, the best price we can manage in Southwest County" because of land prices. They are, he said, traditional homes: two-stories, bi-levels and ranches.
For people ready to move up, Loeb's company is developing in Westchester for $160,000 or so, Kensington at about $220,000, both off U.S. 221 south; and Hollins Court in north Roanoke County, which ranges up to $350,000.
Brad Graham of Graham Construction Co., has already sold six of the 28 houses he is building at Kimball Heights in Salem. Their price range is $110,000 to $150,000.
"We have Salem to ourselves," Graham said of his market. "We are really getting a lot of interest in what we do. ... We're as busy as we've ever been." His company is, he said, having its best year ever, and about 80 percent of his customers are either people buying their first or second homes.
Strauss is aiming for the $150,000 price range in the Roanoke Valley and near-in Botetourt County. An example is Appletree West off Alternate 220 in Botetourt with a range of $150,000 to $190,000.
Because of these economic realities, the first-time home buyer is not the target of most home builders, Strauss said. Buyers of new homes range from their late 20s and newly married to their mid-50s with children in high school. What these people are looking for, Strauss said, is a family neighborhood setting.
Jerry Jones of Jerry W. Jones Construction is working in the $140,000 to $150,000 price range at Rose Walk in the Mount Pleasant section of Roanoke. He said that is the valley's most popular range although he also builds custom homes valued at $400,000.
Andy Kelderhouse, vice president at Fralin & Waldron, said the most sought-after market is buyers of houses costing $110,000 to $140,000. An example is his company's Summerfield off West Ruritan Road, where he has sold 25 of the 145 houses since Thanksgiving. Fralin & Waldron has sold another six of 90 homes at Brookfield off Virginia 116.
He said there "no question that is the price that is the hottest market. We do not have much ability to build for less." At that price, however, people are moving up from 1,200 to 1,800-square-foot homes.
Two or three years ago when mortgage interest rates started to decline, Kelderhouse said, the price range in which to build was over $200,000, like houses in his company's Samuel's Gate subdivision in North Roanoke County. Today, he said, that subdivision "has not quite been found yet" and the market for that price home is soft.
At $400,000, he said, most people want custom-built homes, although Fralin & Waldron builds one or two of them at a time on a speculative basis.
One way to cut the price for the best market is to control the number of amenities.
Loeb, for instance, said he has scaled down in homes in all communities, "trying to have them as affordable as possible."
In the last 36 months, he said, many features have become optional instead of standard on new construction. A rear deck or patio is no longer an automatic amenity, he said. Neither is an attached garage. The room over the garage and the basement remain unfinished. These can be added to the house as optional items at the time of purchase or built by the owner later.
The amount of each option varies house by house with such factors as the size of the basement, Loeb said.
The change provides flexibility, he said. People can get into a new home at a reasonable price and add to the house as they can afford it.
In addition, Loeb said, buyers are not as concerned as they once were about which side of town the house is on.
Even though a lot of building is going at the upper end of the market, Grubb said demand in that price rage is limited. Grubb, in fact, recently began building in Charlotte, N.C., because it is "a faster market" than Roanoke.
The reality, Loeb said, is that the Roanoke Valley has experienced some downsizing in potential buyers for his houses. A lot of people in high-paying jobs have been transferred out of the valley, he said, while fewer are transferred here than was true in the past.
Home prices reflect the marketplace, Loeb said, and Roanoke does not have the high-paying jobs it once had.
That affects the price people can pay for a house. Consider for example, to buy a $200,000 house with an 8 percent mortgage, financing 80 percent of the price, a buyer must earn $59,500 a year, according to Michael Hincker of National City Mortgage in Roanoke. That assumes a normal debt load of no more than $400 to $500 a month. The monthly payment in Roanoke County, Hincker said, would be $1,387.
Yet, Allen DeWeese of DeWeese Construction Co. estimated that 85 percent of his $400,000 homes are sold to people who are transferred to Roanoke. They come from communities where housing is more expensive, he said, so they have built up a large equity to invest in houses here.
David Vaughn of Dominion Builders also said that about half his $250,000 to $400,000 homes are sold to people being transferred to the valley. That may be only 3 percent of the total housing market in the valley, Vaughn said, but if so "I've got the 3 percent."
He said he sells $3 million worth of homes in that price range every year. Somebody has to build in that price range, Vaughn said, because there's a demand by transferred employees of banks and health-care companies.
Transfers, said A.R. Oberbay, are a large part of the market for the 304 houses he plans at Ashley Plantation in Botetourt County, priced at $200,000 and up.
He will divide that development, with half reserved for custom-built homes and the rest to be built on a speculative basis. Oberbay said he will sell some lots to other builders and buyers.
Ron Willard of The Willard Cos., who builds primarily at Smith Mountain Lake, said he doesn't have any trouble selling homes ranging from $200,000 to $430,000. He just got 22 houses at The Boardwalk under roof and eight of them already have been sold. Willard said he sold $1 million worth of homes in just one day the week before last.
To do that though, Willard markets his lake homes in areas within a four-hour drive of the valley. That takes his market from Washington, D.C., to Raleigh, N.C., and from Charleston, W.Va., to Norfolk.
Many of his buyers, he said, are looking for vacation homes. Their average age, depending on the development, is from 47 to 54.
Willard said he has another eight projects on the drawing board.
Another active market in the Roanoke Valley is in housing for "empty nesters," people whose children are grown and gone. They are looking for dwellings that provide convenience and low maintenance.
An example is Southwood, a development of courtyard homes and town houses, proposed to be built atop a hill near the intersection of Avenham Avenue and Franklin Road in South Roanoke. The project was announced in October and, according to developers' spokesman John Lambert, work will begin in the fall. The first of the $259,000 courtyard homes will be ready next spring. The first phase will include 26 of those houses and eight town houses.
A similar project involves demolition of the Wellington Apartments on South Jefferson Street, where David Radford of Radford & Co. said he intends to develop new condominiums. Radford recently purchased the property from Carilion Health System.
Radford will replace the apartments with 17 four-story condos marketed to older people. They will be similar to 18 others he is building at Oak Grove, with ground-level garages below three upper levels of apartment-style dwellings.
His Oak Grove units will sell for $142,000 to $128,000, but higher land costs will drive up the price on Jefferson Street to $185,000 to $224,000, he said.
Radford said retirees generally don't have to buy because they already have a home. He said customers will view each house four or five times before deciding which, if any, to buy.
On the other hand, he said, such buyers generally have enough equity in their current homes so that their decision to buy a retirement home is not related to the economy and interest rates, except perhaps as it affects the sale of their existing houses.
Strauss is developing the Waterford town homes on Peters Creek Road and Parkway Place on Buck Mountain Road for the same market. The former, he said, has a town home setting while the latter will be developed as "villas or carriage homes."
What they share, along with all other homes aimed at this market, is a lack of maintenance. A homeowners association will take care of all outside maintenance and grass cutting. They also feature one-floor plans with no steps.
Loeb is also into the senior market with Forest Place in southwest Roanoke County. Of the 31 lots, Loeb said, more than half already have been sold.
Fralin & Waldron also has "a project on the boards that will address this market," Kelderhouse said.
C.R. Covert of the Home Builders Association of Virginia estimated that the industry generated $3 billion in permits for single-family homes in the state last year. But some economists are predicting that the housing market will slow by later this year.
David Orr, economist for First Union Corp. in Charlotte, said the first-quarter pace in national single-family home construction this year was 12 percent ahead of the first quarter of 1995.
He said the National Association of Home Builders reported that the number of potential buyers visiting new home sites was satisfactory to developers in April, although the level was slightly down from March.
Orr predicted that housing activity will hold its own this spring. But by summer, he said, the 8 percent mortgage rate, coupled with slower job and income growth, will "restrain" housing.
But, he added, "it would take 9 percent mortgages to cause serious housing problems." Orr said he did not expect that to happen.
Christine Chmura, an economist with Crestar Bank, said rising interest rates help the market at first as buyers rush to finance home purchases once they realize they've missed the trough of the mortgage market. By late summer, she said, rates should be high enough to hurt home sales.
Also, Chmura said, personal debt loads are higher than they were a couple of years ago. That will "force some potential home buyers out of the market."
The housing market "will not fall apart," Chmura said. She expects the demand for homes "just to soften, to decline somewhat."
Such forecasts don't faze local home builders.
"I don't see it," Willard said of the prospects of a decline.
And Oberbay, who said he plans to develop the homes at Ashley Planation over a period of seven years, expects the project to encompass all kinds of markets. DeWeese said his two current developments will keep him busy for 18 months.
The Roanoke Valley, Strauss said, "is a good strong market. ... It's a strong market in all price ranges and house styles" even though some price levels are more popular than others.
Markets are hard to predict, Vaughn said, but the Roanoke market never booms and never comes to a halt. The Roanoke market, Vaughn said, "seems to chug along."
LENGTH: Long : 269 lines ILLUSTRATION: PHOTO: Like other builders, longtime contrator Charles Simpsonby CNBis having a hard time finding suitable building sites in the Roanoke
Valley. He currently is building homes worth $175,000 to $200,000 at
Edgemont (background), a subdivision near Vinton. color. WAYNE
DEEL/Staff GRAPHIC: 1. Building Permits 2. Home Values KEYWORDS: HOMEBUILD