By Dan Eaton
Business First of Columbus
Updated: 7:00 p.m. ET Feb. 5, 2006

Central Ohio’s housing market is going through the equivalent of a closeout sale as builders slice prices in hopes of luring back buyers.

But whether a builder is cutting prices immediately or holding out until later, many observers agree the cost of a house will be dropping, discount or no discount.

M/I Homes Inc. is one of the builders cutting prices now.

Taking a page from the struggling U.S. automakers’ sales pitch last summer, the Columbus-based builder is offering an 8 percent discount on its houses in the area. M/I is marketing the discount as a special for the company’s 30th anniversary, but Chief Financial Officer Philip Creek acknowledged the motivator is the slumping Central Ohio market.

“This is one of the higher discount programs we’ve ever run,” he said, “but this is the slowest market in a few years.”

Construction permits for area houses plunged 25 percent in 2005 and are expected to drop again this year. Creek ticked off a well-known list of factors for the slowdown – higher mortgage rates, sluggish job growth and consumers’ declining confidence in the regional economy.

Dallas-based Centex Corp. is also cutting prices. During one hours-long selling campaign, it offered to take up to $70,000 off the price of a house, either one that could be ordered or from the 160 houses sitting in its area inventory.

Wayne Zill, Columbus division president for Centex, said in an e-mail the sale was intended to increase traffic and sales in the Columbus market, which are in a decline.

Executives at Dominion Homes Inc. didn’t respond to interview requests, but the Dublin company’s advertising on its Web site offers up to $40,000 off inventory houses and certain new builds in Central Ohio, and up to $17,500 off spec houses in its Louisville and Lexington, Ky., subdivisions.
Regional problem

Builders had anticipated a tightening market and are beginning to show their strategies for dealing with it in 2006.

Howard Schottenstein, president of the Building Industry Association of Central Ohio and owner of Markpoint Development in Bexley, said all builders are trying to come up with ways to combat the slump.

Some, he said, might be waiting to better gauge the depth of the downturn before taking steps to get through it.

“We’re seeing that the world is changing in regards to the housing market,” said Anthony Chan, economist with JPMorgan Chase & Co. “Discounting is the first sign of cooling prices.”

And as prices fall for the large builders, so will they drop for smaller builders, he said. The signs were evident last year: Chan said the mean price of a new house fell 4 percent to $272,900 in December 2005.

Still, builders view the problem as regional.

Creek said M/I Homes began offering its discounts in Central Ohio in early January, before adding it in its Indianapolis and Cincinnati markets. The company isn’t offering price cuts where sales have been healthy, including Florida, North Carolina, Maryland and Virginia.

Zill said Centex’s 12-hour sale produced the Columbus division’s best week of sales ever, though he declined to provide details.

He said the company has used the technique in other cities to build its brand, including St. Louis, Detroit, Washington, D.C. , and parts of California.
Waiting game

Bob Webb, chief executive of Bob Webb Group, a Lewis Center-based custom builder, said his company hasn’t seen an effect on prices yet, but it isn’t instituting discounts.

“There is too much inventory out there,” he said. “Some companies have a six- or seven-month backlog. Any builder with inventory is making concessions. We just don’t have much inventory.”

With the low interest rates that drove the area’s building boom gone, builders have little choice than to combat the cool-down by lowering prices, Chan said.

“We’re going to see more of this,” he said.

A drop in prices will mean a drop in profit for those who sell houses, but the head of the Columbus Board of Realtors thinks anything helps.

“Any incentive that can be provided to buyers is a great opportunity,” said Chris Reese, the group’s president.

She conceded lower prices on new houses likely will depress the market, but that might be what the industry needs to move many of the houses built on speculation or in deals that collapsed and now sitting empty.

“The bottom line,” she said, “is about getting people into houses.”
© 2006 Business First of Columbus

© 2006 MSNBC.com