Area homebuilders are reading the same downbeat economic news that is inhibiting buyers, but most builders are refusing to panic.
A few even continue to be optimistic -- in the face of 17 percent construction loans, 13 percent FHA-VA mortgages with high discount points and conventional mortgages that are now topping 14 percent in some areas.
"This is going to be a tough year and it will difficult to match our 1979 deliveries -- 1,605 houses," said Arthur Titus, regional vice president for the area's biggest homebuilding company, Ryan Homes Inc., whose average sale price was $64,712. "Move-up buyer are harder to find, so we are concentrating on first-time buyers who do not have homes to sell before buying," Titus said. "Our price range is at the low end and we expect to do more town houses and smaller singles."
Titus and other builders are diligently avoiding building up inventories of unsold houses and are trying to keep price increases below the 15 percent annual average of the past few years. Builders agreed that once-scarce materials -- notably insulation and drywall -- are now plentiful. And good subcontractors are readily available for jobs.
"That availability is definitely in our favor," said Robert Gaw, a veteran executive of the Ryland Group, another volume builder.
Gaw also endorses the industry-wide view that sales suffer as mortgage rates increase. Some large-volume builders have earlier financing commitments still available for buyers at what are now below-market rates. But the next round of loans will be higher.
Builders with attractive permanent financing available are "riding a crest," said Ray Krag, area president for Pulte Homes. "Traffic has been better than expected and sales are keeping pace with last year.
"The demand is there if the buyer can handle the mortgage payment, which has risen nearly 50 percent in a year. I'm optimistic. You have to be in this business."
Another local builder, MCD Holdings, recently reported that 21 deposits had been placed on a new section of town houses in Calverton where prices start at $63,500. "That's remarkable when you consider continuing high interest rates and the extremely cold weather," said MCD chairman Abert Turner.
Less upbeat is Leonard Abel, executive of Richmarr Construction and vice president of the Northern Virginia Builders Association.
"Rates are plain scary today for both builder and buyer," he said. "People are looking, but too many of them are simply priced out of the market or unable to sell their present homes for what they think they should get for them."
This is the uncertain, less-than-bullish situation that faces two builders opening their first houses in this area.
"It's certainly one of the most difficult times," said Gary Garczynski, vice president of the new area division of the Scarborough Corp., an old-line firm now owned by Weyerhaeuser Corp. The building firm is showing its new detached houses in the Medford Leas subdivision in Springfield this weekend. Prices there start at $130,000.
"We're here for the long haul," said the 34-year-old Garczynski, who learned the business in the Philadelphia area.
This year Scarborough would like to sell 75 houses and double that production next year in new locations such as Vienna and near the new Fair Oaks shopping mall. "We had a fourth location in mind for 1980 but we're holding off on that one," Garczynski said.
Another new subdivision of detached houses is being opened in the Seabrook area of Prince George's County be Diversified Housing Corp., headed by Kenneth W. Carlson, formerly a top executive with Ryland. Carlson, an engineer, designed the houses, which have cathedral ceilings and up to five bedrooms.
"A slow market gives a new building a chance to get started and we've got a price range ($80,000 to $100,000) above or below much of the competition," he said.
Keith Brown, sales manager at A.G. Van Metre Associates' recently opened George Mason Forest near George Mason University in Fairfax County, said that 18 sales contracts have been signed for the $123,000-and-up detached houses.
The National Association of Home Builders is predicting that the Federal Reserve Board's credit tightening will reduce starts on houses by 25 percent this year and will drive total residential construction down by 30 percent, to 1.2 million units.
"Costly mortgage financing is the No. 1 problem," said NAHB's new president, Merrill Butler. But the Southern California builder added that buyer confidence and demographics are highly favorable for the 1980s -- "if we can just get through 1980."
Similar confidence was expressed here by Brendan O'Neill, a young builder in Potomac. Five years ago, he started building $150,000 Williamsburg-style houses, houses that are now priced at more than $300,000. O'Neill recently bought the 23-acre Potomac Hunt Club property on Glen Road in Travilah for $450,000. It was available because the club is moving up-country to the Barnesville area.
"I'll have only nine new lots," he said, "but I'm restoring and renovating the old clubhouse into a modern farmhouse and also redoing the huntsman's old house for a buyer." The big clubhouse will the keystone of a group of new homes that will be models of fine old Southern Maryland and Eastern Shore houses catalogued by the Maryland Historic Trust in Annapolis.
O'Neill said he has no inventory of unsold houses.
Neither does Jay Wohlfarth, an experienced builder of high-priced houses and vice president of the Suburban Maryland Home Builders Association. Wohlfarth, who currently has 120 lots at Quail Run in the Darnestown area west of Rockville, is pacing his starts and avoiding building up an inventory.
"Some people seem eager to find distress prices in this market, but they are unlikely to find them out this way," he said.
Wohlfarth has sensed a new interest among buyers in houses with fewer but larger rooms. "I'm doing more three-bedroom houses and putting the master bedroom on the first floor as households get smaller," he noted. He's also considering adding a greenhouse room with a passive solar heating canacity.
In the District, where new construction had perked up in the past two years, the main thrust is still in condominium conversions and creation of highrise condo apartments and "stacked" town houses.
Douglas LaVay, for instance, said that sales have been strong at Park Place, a new town house community near Trinity College and Catholic University in Northeast. The average price there is $89.500.
But the builder said that current market uncertainties and high financing costs have cooled off sales -- after a strong initial response in the second half of last year.
Joseph Pignataro, president of the metropolitan chapter of NAHB and a past president of the D.C. Builders Association, did not pussyfoot around the issue: "As long as mortgage and borrowing rates stay high, the housing market will be sluggish," he said.
"But there seems to be interest in large, rehabbed house with several rental units. I've sold one in the $155,000 range because the buyer wants income to help with the mortgage payment. The house had been vacant five years."
If mortgage money continues to be excessively costly for several months, the lack of demand may act as a brake on the market. Lenders are now paying record rates for deposits and money from investors, forcing mortgage rates to rise. Some builders are surprised when buyers ignore the record mortgage rates if they can qualify for financing.
Apparently, some people simply want to change houses, use their accumulated equity and get something newer. If they can handle the monthly payments, they don't complain about the interest rate.
"But mention of a $1,500-a-month mortgage payment will knock some prospective buyers right off their chairs," one builder said.
A this point, builders are holding tight to their chairs and hoping that they and their buyers can find less costly financing. Nevertheless, the immediate future offers no great hope and the long-term future even less.
Oakley Hunter, chairman of the Federal National Mortgage Association, recently told the Columbia Business School Club in New York that the long-term, fixed-rate mortgage "worked well so long as the economy maintained an even keel. It is ill-designed for a world of unstable and unpredictable -interest rates."
He added that the new flexible, variable or renegotiated-rate mortgages are necessary if we are to have a "workable home finance system that has flexibility on the asset side as well as on the debt side."
Meantime, the Federal Reserve actions to tighten credit and raise the discount rate (four times in the past seven months) have not worked, charges Edwin B. Brooks Jr., the Richmond S&L executive who heads the U.S. League of Savings Associations this year. Brooks said that the Fed's high-interest policy is making inflation worse and urged President Carter to "become more personally involved in the inflation fight." CAPTION: Picture 1, Sales have cooled at Park Place in Northeast, where this town house was recently built, since interest rates reached 14 percent, the builder says. By Tom Allen -- The Washington Post; Picture 2, A.G. Van Metre Associates is building two-story houses like this model at George Mason Forest. By John McDonnell -- The Washington Post; Picture 3, Scarborough Corp., a division of the Weyerhaeuser Corp., is selling this and two other models at its New Medford Less community near Springfield. It is the firm's first project in the area. The house prices start at $130,000. By Craig Herndon -- The Washington Post