This newly constructed home in Southborough is complete save for landscaping. With the real estate market struggling, however, fewer new homes are being built in the Bay State.

Douglas builder Daniel Heney has sold two homes in the first few months of the year, and has been trying to sell another single-family property for 10 months.

That’s a dramatic switch from four years ago, when Heney’s company was averaging nearly two sales per month. Heney has had to cut his staff down to three from 11 in the last three years, and has been reluctant to undertake speculative building.

“We built three [spec] houses in the last two years and they’ve all taken so long to sell they’re unprofitable because the carrying costs are too great,” he said.

Heney’s experience isn’t unusual. Builders in some pockets of the state are holding back, waiting for the housing market to recover. Permitting in Massachusetts plunged during the first quarter of the year. A total of 1,967 housing permits were issued from January through March, a 50.5 percent drop from the 3,970 permits during the same period in 2007.

Of the permits issued in the first quarter, 1,060 were for single-family homes, 40 percent fewer than a year earlier when 1,764 such permits were granted.

“There aren’t any builders that I’m aware of that are putting up spec houses. It’s not a good idea right now,” said Guy Webb, executive director of the Builders Association of Central Massachusetts.
Heney, who builds homes in southern Worcester County, said his company’s workload and payroll are off about 70 percent from two years ago. Heney’s company built a spec home that went on the market last summer for $429,900. Even after being reduced to $399,900 the home hasn’t attracted a buyer.

“It’s very scary. Most of the people that I have talked to are not as busy as we are,” said Heney.

Mark H. Leff, president of the Home Builders Association of Massachusetts, said builders have shown restraint, trimming the number of projects they undertook in anticipation of the slowdown.
While Heney has one spec house on the market, builders in other parts of the country have hundreds that they’re trying to unload, Leff noted.

“While the housing market in Massachusetts is extremely difficult at this time, I don’t think that anybody can blame homebuilders as a cause for this. What you see in other parts of the country are significant amounts of overbuilding and speculative building, which has caused dire harm in places like Nevada, Arizona and Florida. But that’s not the case here,” said Leff, who also is senior vice president of construction lending for Salem Five Bank.
“We’re really seeing very low levels of production for a couple of reasons. One is reaction to the marketplace and secondly what communities allow us to build is homes for older folks and empty-nesters, and those are the people who can’t buy right now because they can’t sell their homes,” Leff said.

‘Positive Direction’

More than 4,000 permits for single-family homes are expected to be issued in the Boston area this year and permitting will climb to over 6,000 in 2009, according to projections from the National Association of Home Builders. The permitting level still will be below the peak in 2006 when roughly 10,000 permits were issued.
Custom homebuilder Len Gengel, president of C&S Builders in Rutland, is optimistic that the market will turn around.
“I feel that this downturn has been here for almost three years and I feel that things are just going to be moving in that positive direction based on my conversations with other builders, bankers and with customers, most importantly,” Gengel said.

Some builders say that the industry more quickly responded to market conditions than it did in the late 1980s and early 1990s, when housing last turned south. Local builders this time around swiftly adjusted their business models and were better prepared as sales stagnated.
Gengel said he’s sold three homes so far this year and expects to close on a total of 10 by year’s end. But he’s cut his staff from eight to four over the last three years.

He eliminated his sales staff and uses a Realtor instead. His company now operates with only an office manager, part-time estimator, job supervisor and part-time controller.

“Builders have been smart, bankers have been smart, everybody has gone into this downturn knowing it’s been coming,” he said.