After decades of being dominated by local contractors, the new-home-construction market in Lancaster County is seeing national builders gain a small foothold.
D.R. Horton, Lennar Corp. and K. Hovnanian Homes, which ranked first, second and sixth, respectively, in the number of houses sold last year but have been struggling in 2007 with the sharp downturn in the housing market, have developments in Lancaster County.
Two of the three projects, known as active-adult communities, are for people 55 and older.
The president of the local Building Industry Association said that large, publicly owned companies have capital available to cover the rising costs of residential development, but that there will always be a demand for the customization offered by smaller builders. One contractor said he welcomes the competition.
Representatives for Lennar and Hovnanian said Lancaster County, with its nearly half a million people, is a fertile market that offers lots of opportunity.
The Hovnanian executive also noted that active-adult buyers are less affected when the housing market slumps, as is happening right now.
Struggles nationwideD.R. Horton, headquartered in Fort Worth, Texas, reported 53,410 closings last year on homes it built, according to
BuilderOnline.com. Lennar, out of Miami, Fla., sold 49,568 houses, while Hovnanian of Red Bank, N.J., reported 20,201 closings.
In Lancaster County, D.R. Horton is developing and building Village Grande at Millers Run, a 55-and-older community in East Hempfield Township; Lennar is building Hawthorne Ridge in Lancaster Township; and Hovnanian is developing and building Four Seasons at Elm Tree, a 55-and-older subdivision in Rapho Township.
The projects were already under way when the housing slowdown started, and all three companies have been hit hard.
In its quarterly report released in September, Lennar said it had revenues of $2.34 billion, down 44 percent from the $4.18 billion earned in the same quarter of the previous year.
It also reported cutting its work force by 35 percent so far in 2007.
In October, credit rating agency Moody's downgraded the debt of Lennar and two other major builders to junk-bond status.
During the most recent quarter, D.R. Horton's revenues decreased 31 percent, from $3.6 billion to $2.5 billion, and Hovnanian's revenues declined 27 percent, from $1.55 billion to $1.13 billion.
Nationally, "we've seen a significant deterioration in the market," said Jim Flanagan, area vice president for K. Hovnanian Homes' southcentral Pennsylvania division.
But Four Seasons at Elm Tree and Hovnanian's other active-adult communities are less likely to be affected because 55-and-older buyers are usually downsizing and have greater equity to start with, he said.
"They're more resilient."
Consolidation, capitalWhen the market is healthy, national builders have the capital required to get projects moving, said Bill Patrick, 2007 president of the Building Industry Association of Lancaster County.
As the cost of residential development rises rapidly, because of increasing regulation and the limited supply of raw land, he said, there's an opening for the large, publicly traded companies to step in. He also noted that the industry is consolidating.
Smaller, spot-lot builders are a diminishing breed, Patrick said. "We're not the Lancaster County we were 30 years ago."
The national builders, often called "production builders," are well aware that the county is fast approaching the 500,000 population benchmark, he said.
At the same time, county residents, an increasing number of whom have moved here from other areas, are more open to outside companies and what they have to offer, Patrick said.
In addition, the membership of the Building Industry Association isn't as localized as it used to be, he said.
Because they build thousands of homes a year, national builders can achieve economies of scale, Patrick said, meaning that the cost to build each house decreases as there is an increase in the number of houses built.
The flip side is less customization, a sacrifice many local buyers aren't willing to make.
"There's still room for ... the one-of-a-kind, trade-and-design-based builder," Patrick said, and there always will be.
Lancaster's appealK. Hovnanian Homes builds in 17 states, covering all areas of the U.S., Flanagan said.
The southcentral Pennsylvania region is from Wilmington, Del., to Harrisburg, he said, and Hovnanian has been hoping to make inroads in the Lancaster County and Harrisburg markets.
"What we've seen there is a great opportunity, especially in the active-adult market," Flanagan said. "We saw that people like to reside there and retire there."
Four Seasons is Hovnanian's 55-and-older brand, which Flanagan called "a lifestyle with a tremendous amenity package," including a clubhouse, swimming pool and bocce courts.
"We build those up front," he said, "which gives us a quite an advantage" over developments that don't build such community features until later phases.
"Being a Fortune 500 company gives us the capital to do that," Flanagan said.
There are going to be 245 houses in Four Seasons at Elm Tree, and just under a third are sold, he said. The subdivision opened in February 2006.
David Paris, sales manager for Lennar's Baltimore Patriot division, said Hawthorne Ridge offers single-family homes, duplexes and townhouses. The 200-plus-home subdivision, which opened last November, will have a community center and swimming pool.
With some prices well under $200,000, Hawthorne Ridge is targeting first-time buyers, he said.
Lennar has many subdivisions in Pennsylvania, "and this is a new area for us," Paris said.
Several calls to D.R. Horton's corporate office weren't returned.
In 2006, some residents of Village Grande at Millers Run complained to East Hempfield Township supervisors about construction issues and their difficulty in getting D.R. Horton to fix them.
An audit spurred by the complaints uncovered flaws in the township's codes department and found deficiencies in several homes. The township and its newly appointed building code official, Code Administrators Inc., offered re-inspections to residents of Village Grande, which turned up more problems, according to one township supervisor.
In May, D.R. Horton filed a lawsuit against the township, claiming officials interfered with its attempts to work with homeowners and make corrections.
Jeff Rutt, president of Keystone Custom Homes, said he doesn't mind the competition from national builders.
"We actually welcome the big guys," he said. "We want customers to compare."
Rutt said the sophistication level of buyers is higher today than ever and their demands keep changing.
Keystone's ability to offer customizing features and creative financing options, such as its "Live Free for a Year" promotion, sets it apart, Rutt said.
"A lot of clients take that for granted, until they visit the national builders," he said.
Still, the big companies are filling a niche in the county, Rutt said, and there's enough business to go around.
"This is a great place to live and build homes."
Paula Wolf is a staff writer for the Sunday News. She can be reached by e-mail at pwolf@lnpnews.com.
