Carol Stewart spent three years looking for a place to buy. But everything she liked was too expensive. And everything she could afford she didn't like.
Last June, she finally found what she was looking for -- an airy, one-bedroom condominium in Fairfax County's Kingstowne home development. For $115,000, she got all the extras she wanted: a separate entrance, windows on three sides, a fireplace, and French doors that lead from her bedroom out onto a patio. Stewart, who rented an apartment in Annandale for 15 years before taking the plunge into homeownership, is thrilled.
"This is what I want," she said. "And I can afford it."
Longtime renters like Stewart are getting renewed attention from Washington area home builders. After racing en masse to build bigger dwellings for homeowners flush with equity from the area's booming real estate market, builders have retreated and are heading back down the price scale. They're retrenching from the excesses of the past -- the four- and five-bedroom mansions costing $300,000 or more -- and are building condominiums, less-expensive town houses and smaller single-family detached homes to reduce prices.
"We think that, given today's circumstances, bigger is not better," said Bo Young, president of Miller & Smith Inc., which built Stewart's condominium. The McLean-based home builder is shifting rapidly into condominiums priced at $113,000 to $200,000. Over the next three years, one-third of the units that Miller & Smith builds will be condominiums, Young said. Two years ago, the company built no condominiums.
Said another home builder: "It's the kiss of death" to sell town houses for more than $130,000. He said it's a "no-man's land" to sell single-family detached homes for more than $250,000.
Stephen Finn, managing partner for the Washington office of Kenneth Leventhal & Co., a real estate accounting firm that has worked for area lenders and builders, compares the region's real estate market to a frosted cake. For decades, he said, the real estate market was solid and predictable, like a cake, with a small market for upscale homes, which Finn compared to the frosting.
However, in the 1980s, too many lenders and builders jumped into the market for highly profitable "frosting" houses -- upscale mansions for the move-up market -- and neglected the "cake," or more basic homes.
Finn pointed to statistics showing that while the median income in the area increased 10 percent a year in the 1980s, the average base price of a new home in the latter half of the decade went up 20 percent a year. The result: too many mansions in an area where too few people could afford them and too few homes for the bulk of the population.
"We really created this huge void in the market for entry-level buyers," said Pam Manfre, a real estate consultant.
"Everybody was at the top end," said Debbie Rosenstein, president of Housing Data Reports, a market-research firm. "They should have been in those price ranges all along."
While the burst of construction of more modest homes is good news for the area's young professionals, many of whom were priced out of the new-home market by the escalating prices of the 1980s, it probably won't make a dent in the dearth of affordable housing for the area's poorer residents. The average price of a new home in the D.C. area still is a whopping $292,000, according to Housing Data Reports, although that number is expected to drop in the coming months as more lower-priced new homes become available.
Eager to sell homes to first-time home buyers, who aren't as affected by the real estate slump as people who already own a house, some builders have turned to condominiums. Condos also appeal to the growing number of empty nesters -- older couples who no longer want the expense and upkeep of a large house. Because more condos can be built per acre, it keeps costs down.
Condos are accounting for a bigger share of the number of new-home sales: About one out of every four new-home sales is a condominium. In 1986 condos accounted for only 16 percent of all new homes sold, according to Housing Data Reports.
Hazel-Peterson Cos., based in Fairfax County, is one company that has jumped wholeheartedly in that direction. In the last three years, it has moved out of office construction and into building condominiums and apartments. It is building 622 one- and two-bedroom condominiums priced from $77,000 to $131,000 in three planned developments in Fairfax County. Company executives said they are pleased with the pace of sales.
"In these demanding economic times, we're trying to do everything as affordable as we can," said James Todd, president of Hazel-Peterson.
However, area builders said that condominiums are tricky to build and market and that they have to keep a close eye on potential buyers. Buyers will reject them if neighboring developments offer town houses, as opposed to condos, in the same price range, market consultants said. Recently, builders said, sales of lower-priced condos in areas surrounding military bases have suffered as military personnel have been shipped out to the Persian Gulf.
As a way of keeping in touch with buyers, executives from Bethesda-based Winchester Homes recently took owners of its condominiums in its Riva Trace project near Annapolis out to dinner and quizzed them about what buyers in the 1990s want, said Christopher Zell, the company's vice president of marketing.
With town houses and single-family detached homes, which generally cost more than condominiums, builders are tackling their high prices with a variety of methods.
They're introducing smaller, easier-to-build models and, as way to save money, are reviving more modest home designs from past years -- what builders call "four and a door."
The area's huge planned developments, such as Ashburn Village, Cascades and Kenthlands, now sell houses priced tens of thousands of dollars less than planners originally had envisioned.
That's good news for home buyers, although some previous home buyers have expressed unhappiness that their neighborhoods will not be as high-priced and exclusive as they had once envisioned.
Richmarr Construction Corp. has redesigned homes in seven of the 12 developments where it builds. In Loudoun County's Ashburn Village, for example, it now sells several models ranging in size from 2,500 to 3,000 square feet, with prices starting at $250,000. Previously, it sold models ranging from 3,100 to 3,400 square feet, with prices starting at $277,000.
Fairfield Homes has revived a smaller home design from the early 1980s, updated it with such amenities as larger closets and bigger bathrooms, and will be selling it at a planned development in Fairfax County called Sully Station with prices starting at $208,000.
Stanley Martin Cos. has downscaled single-family detached homes in one Fairfax County development and is selling them for as little as $215,000. Previously, the homes' prices started at about $260,000, according to marketing director Laura Henne. "The market pretty much has been telling us for the last year that prices are too high," she said.
In most cases, the builders' new or revived designs are easier and thus are cheaper to build. Such luxury touches as spiral staircases and round windows, which are time-consuming and expensive to build, have fallen by the wayside.
Builders have found, however, that move-up buyers are unwilling to sacrifice some amenities they have come to expect in a new home, such as ceiling molding, better-quality carpets and lavish bathrooms.
"There's nothing that says that people are willing to accept anything less than a move-up house," said Alan Shearer, director of marketing for NVHomes, a subsidiary of NVR L.P. that has redesigned several single-family detached homes and town houses and lowered the prices. "It's just that they want a lower price."
"Buyers are not falling in love with a house like they used to," said Robert Reed, director of marketing for Richmarr Construction Corp. "They're going after the deal."
With previously upscale builders now embracing affordability, builders who specialize in more modest houses are finding unexpected competition.
Laing Homes, a division of an English home builder, opened its first sales office in the Washington area last January. Laing, which focuses on selling to people buying their first or second homes, had expected to be the lowest-priced builder in the developments where it is selling houses. Now, however, it is finding itself in the pack. "We've got a little more competition than we expected," said Leagh Ferguson, chairman of the Washington division of Laing.
Despite all this talk of affordability, that doesn't mean buyers will see $90,000 town houses suddenly spring up. Builders paid so much for the land, usually with borrowed money, that they cannot afford to build just anything simply to sell a house.
In Cascades, the 3,000-acre planned development in Loudoun County, builders paid upwards of $80,000 per lot in the market's heyday. Thus, it is virtually impossible for them to build $125,000 town houses and still have the cash to pay back land loans.
In those cases, "you've got to gut it out, in a sense, and wait for the market to come back," builder F. Gary Garczynski said.
Finn of Kenneth Leventhal said he is concerned, however, that builders will take the trend to less-expensive houses too far. If so, he warned, the area, which already has a glut of high-priced homes, could end up with too many condos and lower-priced houses.
"I think there is a market here," Finn said. "We have to find it. But we better not all find it at once."