Real Estate News

March 11, 2014

Myrtle Beach area’s local builders challenged by spec home surge

A renaissance in spec home building along the Grand Strand is being led by national and regional builders, and their activity could make it harder for local builders to get a piece of the action.

A renaissance in spec home building along the Grand Strand is being led by national and regional builders, and their activity could make it harder for local builders to get a piece of the action.

Spec, or speculative, homes are those built without a buyer during construction, and the ability of national and regional builders to do multiple spec homes at one time can flood the market, said Berkeley White of Classic Homes.

That will not only make it harder for local builders, who may be doing just one or two spec homes at a time, to lure buyers to their properties but also will create a buyer’s market, lessening the potential profit, said White, past president of the Horry Georgetown Home Builders Association.

On the other hand, White said the rise in spec home construction among regional and national builders buttresses the fact that Grand Strand real estate is a very healthy market now and has companies like his moving to put up their own spec homes.

“A lot of people want to buy new homes,” he said, “but they don’t want to build.”

White said Classic Homes likely will build a spec home within the next six months, and it undoubtedly will face competition from some of the 28 spec homes under construction by H&H Homes, a Fayetteville, N.C., builder looking to establish itself as a big player in the Grand Strand market.

Kerry Avant, H&H executive vice president of business development, said the company began acquiring land in Horry County in June and now has bought or has options on more than 400 lots in five subdivisions, where their homes will range in price from the $200,000s to more than $400,000.

“If half of what they’re projecting for Myrtle Beach comes through,” Avant said of the area’s economic outlook, “it’s going to be a very good market.”

Avant said H&H has a very good relationship with its lenders, so financing isn’t a problem. Also, the company grew up in the military-heavy markets in Fayetteville and Jacksonville, N.C., which perhaps makes it less worried about spec home construction than some local builders might be.

“In the military, you’ve got to have spec inventory,” he said.

White said he’s heard about H&H coming into the market, as has Laura Crowther, CEO of the Coastal Carolinas Association of Realtors. Jay Huggins, president of commercial lending for CresCom Bank, hadn’t heard of the company, but agreed that the number of spec homes it is building makes a statement.

Huggins said most local homebuilders and bankers are a lot more conservative about spec homes than they were in the days before the real estate meltdown.

He said spec home lending pretty much dried up for a couple of years after the bubble burst, but added that CresCom has been lending some of its builder-customers the money to build spec homes for the past three years.

Local builders, he said, will tackle one, maybe two spec homes at a time, but they remember the severity of the fallout from the market crash and aren’t interested in opening themselves up to that kind of exposure.

Like White, Huggins noted the problems wholesale spec home building by national and regional builders can pose to local builders, but he doesn’t see the area’s builders being coaxed into spec home construction just because of the activity of H&H and others.

As many eyes as H&H has opened with its spate of spec home construction, it is by no means the heaviest player in that field locally.

National builder Lennar, for instance, is building 62 spec homes in Horry and Georgetown counties.

National builders for the most part self-finance their construction and don’t have to worry about bank constraints, and perhaps for that reason, Lennar never really stopped spec-home construction along the Grand Strand.

Jason Byham, the company’s Coastal Carolinas Division director of sales, said in an email that spec homes are an important part of Lennar’s business model. He did say, though, that the company has increased spec home construction considerably in recent months, and that it is up 40 percent over last year.

“Lennar’s ongoing work in and around Myrtle Beach shows how much we believe in the market’s potential,” he wrote.

His statement would serve to buttress H&H’s decision.

Avant said the company is developing a new plan for smaller, single-story homes to serve the Strand’s retirement market, and the company’s multifamily division is building apartments for student housing on S.C. 544 across from Coastal Carolina University.

Some of the homes H&H is building now will become model homes in Pelican Bay, Shaftesbury Estates and Shaftesbury Glenn, but it is also working to fill lots it has purchased or has options to buy in Shaftesbury Green and Palmetto Green.

Avant said the company recently began a similar foray into the Charlotte, N.C., housing market, and he expects the spec homes it is building now in Horry County will be reduced in number as the current homes are purchased. But some, at least, spec home construction will be ongoing to replace those that are purchased.

Avant said he’ll be happy if the company sells 60 homes in Horry County this year and increases that to 100 in 2015. He said Myrtle Beach is getting to be one of the hottest housing markets in the Carolinas.

But the company’s foray into Charlotte will keep it from looking for more land along the Grand Strand in the near future. Or at least from formally looking.

“We always look,” Avant said. “That’s the nature of being in this industry. We always peek.”

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