"Construction of new homes in the Charlottesville region declined sharply in 2007, reflecting the nation’s dreary economic outlook and a local drop in demand for housing.

"Many builders have homes that aren’t selling," said Bill Mezger, an economist with the Virginia Employment Commission. "So fewer houses are being built."

The number of residential building permits approved last year in the greater Charlottesville area plummeted by 14 percent from the previous year, according to data compiled by the Weldon Cooper Center for Public Service at the University of Virginia and The Daily Progress.

Over the previous two years, the number of new residential homes in the region fell by 30 percent, as the number of permits fell from 3,452 in 2005 to 2,423 in 2007. Building permits are the last hurdle of the approval process before homebuilders can begin construction on a residential unit.

The estimated total value of homebuilding projects also shrank, falling from $704.4 million in 2005 to $541 million in 2007.

While the decline was not as steep in Charlottesville, which saw only a 6 percent drop from 2005, most counties surrounding the city reported far fewer new residential permits. The sharpest drop was seen in Orange County, which had a 54 percent decrease, followed by Nelson and Madison counties. Only Buckingham County saw a rise in its number of building permits, with a 62 percent increase over 2005.

"Builders, to preserve their business and to keep their books happy, are scaling back," said Jay Willer, executive director of the Blue Ridge Home Builders Association.

One consequence of the region’s brake on building is that few homebuilders are constructing "spec houses," or homes that do not have a buyer lined up before construction begins.

Plus, some homebuilders are slowing down progress on residential real estate projects, as developments often rely on cash flow from the sales of homes in a project’s previous phase to finance the next phase. With a drop in demand, some builders are not able to immediately finance further construction.

Yet many builders are not exactly panicking. With fewer new homes being built, the region’s inventory of homes for sale may be creeping down.

"It’s very clear that building has slowed down," said Mike Gaffney of Gaffney Homes. "But that’s not necessarily a bad thing."

In the long run, a reduction in the housing inventory can be good for real estate companies because it restores a bit of balance to the housing market. Currently, 3,300 homes are available for sale in the region, roughly 1,300 more than is ideal for real estate firms. With such a surplus of homes on the market, homes sell for less and buyers can find better deals.

"There’s energy in the marketplace right now," said Dave Phillips, chief executive officer of the Charlottesville Area Association of Realtors. "The market is oversupplied. We’re in a buyer’s market. We’d like to see some balance restored."

For the time being, the housing oversupply is good news for homebuyers, particularly because mortgage interest rates are currently below 6 percent.

"There’s some incredibly good deals out there right now," Willer said.

Despite the homebuilding slowdown, the Charlottesville region’s real estate market and overall economy remain relatively strong, said economists and real estate industry officials. Unemployment remains low at around 2.6 percent; UVa and the National Ground Intelligence Center continue to attract jobs; baby boomers are retiring to the Charlottesville area; and the region’s quality of life still draws many new residents each year, they said.

The national economy is possibly heading into a recession, they said, scaring away potential homebuyers in the Charlottesville area.

"When you see it on the news every night, you think, ‘Oh, this is terrible, it must be happening right here in Charlottesville,’" Gaffney said. "But it’s not."

Josh Goldschmidt of Church Hill Homes agreed.

"The challenge we have right now is convincing people that we’re not the national economy," he said. "My personal opinion? Now is a great time to buy."

One sector of the real estate market that may be performing better than average in the Charlottesville area, builders said, is environmentally friendly and energy-efficient housing.

Bundoran Farm, a 2,300-acre housing development of up to 108 homes being built in southern Albemarle, is one such example. Roughly 90 percent of the development will be preserved as rural countryside, while many of the homes are expected to incorporate sustainable design elements.

From April to October of last year, seven Bundoran Farm lots had been sold with an average sales price of $706,429. Compared with similarly priced housing developments in Albemarle, Bundoran Farm was outpacing its competitors and accounted for 43 percent of all lots sold within rural subdivisions, said project manager David Hamilton.

"Although there’s a decline for housing overall, that’s not the case for certain markets, such as ours," he said.

The Belvedere development off Rio Road in Albemarle is enjoying recent interest, said Cass Kawecki, director of sales and marketing for Stonehaus. Under construction now, the project will eventually feature up to 700 energy-efficient homes. In the last two weeks, the project’s two homebuilders bought 50 lots at the site, anticipating interest from homebuyers, he said." (Brian McNeill, The Daily Progress, February 16, 2008)