Hanging On to the Boom

In uptimes, that meant less profit because the company often paid a higher price for optioning developed land.

But in a down market, like now, the strategy shines.

Competitors who bought land outright were stuck with depreciating land, and too much of it. As demand waned, they ended up nixing projects and selling off parcels at big losses to generate money.

Conversely, NVR, which maintains a strong balance sheet, was able to walk away from its deposits and lose far less. In some cases, it was able to renegotiate the price for the land it had walked away from.

"The risk was far less, but so was the margin," said Gopal Ahluwalia, vice president of research at the National Association of Home Builders.

NVR's inventory peaked in 2005, declining in 2006 as the market started to go down. One analyst said some other companies weren't as realistic about acknowledging the downturn.

Nowadays, NVR's contractors and laborers are still pounding nails and moving earth, mostly in the East. NVR is the dominant builder in the Washington-Baltimore region, with about 18 percent of the market, according to Hanley Wood Market Intelligence, which tracks housing activity. In the past year, NVR sold 2,456 units in the region.

Homes aren't selling as quickly as they did in the boom times, but people are still buying in NVR communities such as Little River Commons off Gum Spring Road in eastern Loudoun. That project is slated to have 103 townhouses and 69 single-family houses, and as of last month, 23 townhouses and 38 single-family houses had been sold, according to Hanley Wood.

Although NVR has fared better than most builders, it certainly has not been immune to the industry's downturn.

NVR's stock has jumped around from over $900 a share in July 2005, at the peak of the housing boom, to $665.15 on Friday. In May 2007, Banc of America Securities downgraded NVR from "neutral" to "sell." In August, the bank upgraded from sell to neutral.

Its profit of $333.9 million in 2007 was down from $587.4 million the previous year. Gross profit margins for homes declined to 16.3 percent from 22.1 percent, the result of tough market conditions and $262 million in lost land deposits that NVR chose to walk away from, according to the company's 2007 annual report.

"Although these results were far from where we would like them to be, we adjusted to changing market conditions; and consequently, we are proud to have outpaced the broader home-building industry," wrote Chairman Schar and Paul C. Saville, the chief executive, in a letter to shareholders in the annual report.

Through a company spokesman, NVR officials declined to comment for this article.

But the annual report gives some insight into the uncertain future.

"We expect to see continued pricing pressures and in turn, continued pressure on gross profit margins in future periods," the report said.

"To offset these declining selling prices and customer affordability issues, we are aggressively working with our vendors to reduce material and labor costs . . . in addition to the focus on reducing lot costs."

Additionally, the report said the company was providing some housing at lower prices by reducing square footage and was providing fewer upgraded features as standard options.

NVR has "done very well marketing and stabilizing the price points" in this area, said Guy Sheetz, regional manager for Hanley Wood. "Some of the smaller builders are still juggling the price points. Finding the right price in a down market seems to always be a difficult position."

NVR's performance has brought accolades, particularly for Schar, who stepped down as chief executive in 2005 but remains chairman. Saville, 52, who succeeded him and has been an NVR officer since 1993, is credited with running the day-to-day operations.

"In my opinion, Dwight Schar has the best real estate sense in the industry," said Bob Kettler, chief executive of Kettler homes in McLean, who has done business with NVR for years.

As for the company's houses, JDPower.com, which rates customer satisfaction, gives NV Homes and Ryan Homes in the Washington area a rating of "about average." Its survey is based on a host of factors including workmanship, warranty and customer service, price and value.

Zelman, the analyst, predicts that NVR will come out of the housing slump in an even stronger position in the industry and will probably expand geographically.

"I wouldn't be surprised to see them go into the Carolinas more aggressively and good growth markets," Zelman said. "They're clearly in a position to take advantage of all the distress in the land markets because of their strong balance sheet."