Builders remain bullish: Area likely to escape home construction slump, experts say

When home mortgage lender Fannie Mae this month predicted home sales might fall as much as 10 percent in 2006, Wall Street shuddered.

Shares of home builders dropped, temporarily stalling a rally in the broader stock market-and raising questions whether the pace of new subdivisions in central Indiana might slow.

Yet despite the discouraging outlook for the national housing market, builders active in central Indiana remain optimistic, singing a common refrain: not here.

As it has for the past two years, the Builders Association of Greater Indianapolis predicts the market for new homes will remain essentially flat. Builders obtained permits for about 13,000 new homes in 2004 and in 2005, a number that’s expected to remain steady the next several years, BAGI CEO Steve Lains said.

Some builders are even predicting robust growth of their operations in central Indiana, achieved through increasing market or offering new products in choice locations.

“We feel very good about the Indianapolis market,” said Rusty Crandall, Indiana division president for California-based KB Home. “Our business plan is up about 10 percent from where we had been. … The market here is strong and steady-it’s not like California or the Southwest or Southeast markets that have been completely booming.”

Because the local market hasn’t been booming, it likely won’t bust, either, said Crandall and other builders.

KB, which entered the Indiana market in mid-2004 with its purchase of locally based Dura Builders Inc., plans to build 750 to 800 homes in the Indianapolis area this year. Nearly all of them will be in communities forming a horseshoe around the northern half of Indianapolis-a departure from Dura’s previous emphasis on southern suburbs.

“Our research shows the majority of people prefer to be in the northern hemisphere of Indianapolis,” Crandall said. KB plans to open 15 communities in 2006, including ones in Avon, Greenfield, Carmel, Zionsville and Duke Realty Corp.’s Anson development in Boone County.

While KB plans to grow by taking market share from other builders already active in those areas, another builder-Dallas-based Centex Homes-expects growth from expanding product offerings.

Centex in 2006 will roll out a luxury home line early this year in the Indianapolis market and also plans several townhouse and condominium projects. The company plans to build more than 1,000 homes in the market this year, up from 650 in 2005, said Tim McMahon, Centex’s Indiana division president.

The new products reflect changing demands from buyers, he said. Townhouses and condos, which will make up as much as 25 percent of the new homes Centex will build this year, cater to those who want to live close to amenities but are being priced out of the single-family market in the most desirable neighborhoods, he said.

Centex is working on a townhouse project at 136th Street and the Monon Trail, near Carmel’s city center and arts district. It has similar projects planned in Washington Township and is eyeing the downtown condo market, in recent years the domain of relatively small local developers.

“It’s becoming more and more of a challenge to find land in first-tier markets, in that first ring around Marion County,” McMahon said. “Especially in a flat market, it’s about location.”

KB also plans more multifamily forsale projects in the coming years, but Indianapolis will, for the time being, remain a largely single-family market, Crandall said.

“Until a market reaches a point where land prices get relatively high, people prefer single-family detached [housing],” he said. “Our surveys are pretty clear about where those areas are [locally].”

Local privately owned builders are less forthcoming about their plans for 2006 than publicly traded companies like KB and Centex. But BAGI’s Lains said economic data should give many in the industry comfort as they roll out new subdivisions.

The number of jobs in the Indianapolis area is increasing steadily, but not explosively. Interest rates are creeping up, but remain low compared with historic levels, Lains said.

“We’re feeling pretty bullish on the marketplace,” he said.