Maine Home Builders Adapt to Shifting Market

The foundation is in and workers have begun framing the first home in Gray Goose Estates, a new subdivision in Westbrook, Maine. It’s a 1,400-square-foot cape with a base price of $204,000, roughly $50,000 below the median price in Cumberland County.

That price point is no accident, according to the Nashua Telegraph. The builder, Windham-based Custom Built Homes of Maine, initially planned “move-up” homes, with garages, paved driveways, gas fireplaces and other extras that would sell for $270,000 or so.

But as the Maine housing market slowed and potential customers had trouble selling existing homes, the builder redesigned the project to make it more affordable for first-time home buyers.

The strategy is working. Five of the 20 homes in the first phase went under contract quickly.

Cutting amenities is one way southern Maine home builders are weathering the national downturn. They’re also offering incentives to first-time home buyers, writing contracts contingent on the sale of existing homes and lowering prices.

“We’re trying niches that keep us out of the $350,000 to $400,000 market,” said Ron Smith, owner of Custom Built Homes of Maine.

Some home builders say these adjustments really just reflect a correction, a return to a more-stable construction environment. But housing starts for 60 towns in southern Maine show that the brakes have come on hard.

Through the end of October, the number of new building permits dropped 27 percent from the same period last year. At the same time, average prices continued to climb - at least until recently. They’ve risen from roughly $163,000 in 2002 to $225,000 today, as mortgage loans remain affordable.

Real estate markets are notoriously local.

Maine, with its low population growth, rarely sees the overbuilding and speculation common in, say, Florida or Arizona, where investors have been snatching up cheap home mortgages and buying properties like crazy. Those regions helped send the industry into a swoon last month that saw home building fall to its lowest level in six years, down 14.6 percent.

To move inventory, a survey by the National Association of Home Builders found, 55 percent of builders were offering incentives; 42 percent paid closing costs, and 26 percent were picking up points on home loans.

In some parts of the U.S., a large percentage of potential first-time buyers are walking away from contracts when homes don’t sell, leaving builders with a spate of half-finished homes.

The volatile market is requiring a delicate balance. Builders want to be ready if demand picks up in early spring but don’t want to have too much money tied up in speculative building.

The renewed focus on affordable housing seems to be helping modular home builders, who cater largely to first-time home buyers and empty nesters.