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Realtors and developers live by the credo that perception is reality. So when Capital Region home sales slowed dramatically earlier this year amid a swirl of national media reports about a mortgage crisis and a recession, a coalition of area housing industry groups swung into action.

In an unprecedented move, more than 3,500 area real estate experts pooled their resources and went on the offensive, hiring a PR firm and launching a marketing campaign with the following message: Low interest rates, good inventory and competitive home prices make this a good time to buy or build.

From a public-relations perspective, letting the public know that “Homeownership Builds Stronger Commu-

nities”—the name of the coalition’s awareness campaign—might have been a good idea. But Ed Kramer was troubled. Kramer, the principal of Palm Hills Development Partnership, knows the market and has seen too many upstart subdivisions stall out over the past year to toe the party line.

Not only does he disagree that Baton Rouge’s biggest problem is one of perception, he believes trying to put a positive spin on the slump only exacerbates the problem by encouraging more development.

“Everybody’s stretched right now, but nobody wants to admit it,” Kramer says. “Builders are hurting, developers are hurting and it’s really not good.”

Kramer’s not a naysayer. He’s honest and, like the child who dared to utter that the emperor has no clothes, he’s saying what many others whisper behind closed doors—Baton Rouge is overbuilt and somebody is going to take it on the chin.

Indeed, a tour of a dozen new developments in southeast East Baton Rouge and northern Ascension parishes shows literally hundreds of empty lots and dozens of vacant spec homes. And the lack of activity is not limited to those areas alone.

Fliers advertise whole chunks of undeveloped tracts in subdivisions from Brusly to Central. Though Realtors offer credible explanations for why the land is on the market, it’s also true if lots and spec homes were selling like hotcakes, developers wouldn’t be looking to get out of deals.

Other statistics also point to the slowdown. New home starts in East Baton Rouge, Livingston and Ascension parishes were down 60% during the first quarter of 2008 over the same period the year before.

True, there are bright spots. Existing home sales are relatively strong, and home sale prices continue to appreciate. Perhaps more significantly, the six-month inventory of available homes is down from what was a 10-month supply earlier this year, according to local industry groups.

But it’s hard to dispute there is too much new construction, particularly on the outskirts of the metropolitan area, where numerous developments sit vacant and abandoned, looking like victims of a dust bowl downturn with row after row of empty lots.

“Anybody who says things are moving as fast as they’d hoped would be lying,” developer Richard Carmouche says. “Developments that had a chance to get started before we had this slowdown have continued to build on that, but the guys that are just coming out with lots, they’re struggling.”

Many of those would-be developers and builders got in the game right after Hurricane Katrina, at a time when the market was starting to slow. The influx of refugees upset that natural cycle, inflating the market and creating an immediate demand for housing. Overnight, home prices shot up. So did residential developments in places like Prairieville, Denham Springs and Port Allen.

“We had a lot of me-too developers and builders,” says Realtor Randy Anderson, who is among the agents marketing a massive Ascension Parish development called Keystone of Galvez. “They saw the success that was going on here and in Livingston and elsewhere, and they jumped on the bandwagon.”

In hindsight, they were wrong. More than half of the 100,000-plus evacuees went home, and the credit crunch and national recession began to affect buying decisions. The result was a glut of new construction.

In southeast East Baton Rouge and northern Ascension parishes, divided by Bayou Manchac, the problem is particularly acute—or perhaps just painfully obvious. Among a few examples:

• Willowbrook Subdivision, at Jefferson Highway and Hoo Shoo Too Road, has 100 lots, a handful of which have been listed on MLS since last November. So far, none has sold.

• Hoo Shoo Too Lakes, on Hoo Shoo Too Road about two miles east of Jefferson Highway, has seven small spec houses amid 83 vacant lots. So far, just two lots have sold. No houses have sold yet, though the project’s Realtor, Diana Sutherland, says two houses were pre-sold.

• Wrenwood Subdivision, off La. Highway 42 east of Airline Highway in Prairieville, has about 10 homes. Though the lots are not on the market, the homes have been for sale on MLS since last summer. So far, only one has sold.

• Keystone of Galvez, on La. Highway 935 in Ascension Parish, has more than 750 lots on the planned 80-acre, resort-style development, though only 90 are currently being marketed. They’ve been for sale since early this year. So far, none has sold.

Keystone’s developer, Kevin Nguyen, was out of the country and unavailable for comment. But Anderson, who’s marketing the property, believes a couple of factors are behind the sluggish sales. First, buyers are holding back, trying to take advantage of the buyer’s market and waiting for prices to drop. Also, many builders are stuck with excess inventory and are not picking up vacant lots at the same pace they were in 2006 and early 2007.

“We had a scarcity of lots 18 months ago,” Anderson says. “Not anymore.”

Some developments have been hurt by delays. Hoo Shoo Too Lakes, for instance, was nearly eight months behind schedule. It made all the difference.

“We had anticipated having houses on the ground last November, but it was delayed,” Sutherland says. “Then the market shifted.”

A different kind of market condition has also had a negative impact on developments in outlying areas: gas prices. Though statistics are not available, real estate agents say they’re beginning to hear from clients who want to move closer to the city to cut down on their costly fuel bills.

“I’ve had three calls this week alone from people who live in Ascension Parish and want to move in closer,” says Della Neely of Help-U Sell. “I had someone tell me their gas bill was $1,500 last month.”

Developments in the outer reaches of the metro area are not the only ones struggling. Even homes in the high-end Settlement at Willow Grove, a much-touted TND on Perkins Road between Bluebonnet Boulevard and Siegen Lane, are not selling as briskly as Carmouche had anticipated. Though he has sold 115 of the 157 lots, many of those were parceled off in chunks to various builders, and fewer than half of the 45 homes in the development have sold.

“We have a good sampling of houses out there—specs and customs,” Carmouche says. “I guess in a stronger market we would have had a whole lot more than that.”

Another indication of problems in the market is that several large tracts of unfinished developments are being peddled by Realtors and mortgage brokers. They’re advertised on fliers that are circulating around town and showing up in local e-mail boxes.

An ad from one commercial property listing service is looking for “investors to complete development” in Denham Springs. The subdivision has 30 single-family dwellings with pre-solds in place, but apparently not enough interest from buyers to warrant finishing the project. The agent on the flier, Robert Southard, did not return calls for comment.

Latter and Blum is also marketing various developments that are only partially completed. One is a 126-acre, mixed-use development on Mickens Road in Central with available commercial and residential tracts. The company also is marketing 20 acres of the Orleans Quarters Subdivision in Brusly. The first filing of the subdivision is sold out, but the developer wants out of the project anyway, according to the agent marketing the deal.

“It was his first project like this, and it kind of wore him out,” says Andy Roberts of Latter and Blum. “So now he’s trying to find someone to develop the back half for him.”

That may well be, and Orleans Quarters has received high marks for its design. But observers note if developers and builders were raking it in on projects, they wouldn’t be looking to get out of them.

“If things were as good as is sometimes portrayed, then we wouldn’t see these properties up for sale,” notes one local developer who asked not to be identified. “We would see people completing these projects.”

Statistics reflect the degree to which activity has dropped off. New home starts in East Baton Rouge, Livingston and Ascension parishes were down to 473 in the first three months of 2008 from 1,164 last year during the same period, a 60% decline. They were down 40% in Ascension, 58% in East Baton Rouge and 63% in Livingston.

“There are some developments that are in deep trouble,” says Joe Didier, president of the Capital Region Homebuilders Association. “But that’s historically true in all markets at all times, and if something is put in at the wrong time and the wrong place then it’s getting hammered.”

Timing is clearly a factor. While activity has come to a virtual standstill in parts of southeast East Baton Rouge and northern Ascension parishes, Kramer and his partner, Doug Woolfolk, did well in that area with several developments they completed in the early 2000s. They were some of the first in the area, and they got in on the upswing.

Location is important, too. Builder Joe Ward says he’s doing well with his latest development, West Palm Estates, in Port Allen. With the surge in gas prices, developments that are in the city, or close to it, appear to be faring better than those that are 30 minutes or more from downtown.

All of which leads Ward to remain optimistic about the market. He believes that much of the recent downturn is really more of a correction and a return to a normal, pre-Katrina market.

“The Katrina effect through ’05, ’06 and part of ’07 definitely caused some turbulence in the market,” Ward says. “We’re just now settling down to a calm that I think will be comparable to 2004 by year’s end.”

There is ample evidence to suggest that in some segments of the local market—be they certain locations, price points or types of developments—that will be the case. But there is also plenty of evidence to suggest that there are many trouble spots, too, that won’t be going away anytime soon.

“I drive by all these vacant developments and I wonder, ‘Who’s going to live there,’” Neely says. “‘Where are all the people?’”

FUEL TO THE FIRE

Though strong by national standards, the Capital Region residential market has slowed, and it’s clear the post-hurricane boom is over. The cooling is particularly evident in developments under construction. Here are key factors fueling the slowdown:

• Overbuilding: Inflated post-Katrina population estimates, tight supply, easy lending standards and an increase in the number of developers and builders combined to launch a remarkable number of new projects—clearly more than the market can absorb at this time.

• Location: Projects suffering the most are those being developed in less than prime areas. This is especially true with some projects in Ascension and Livingston parishes. No matter the market, the adage

of “location, location, location” never fails.

• Consumer confidence: The bombardment of negative news about the national real estate market and slumping economy has prompted an increasing number of would-be buyers to delay because they’re either

1) concerned about their economic future or 2) delaying in the hope prices will drop.

• Gas prices: Record pump prices have made commuting a far more expensive proposition, causing homebuyers to look

for homes closer to where they work. This

is especially troublesome for projects deep into Livingston and Ascension parishes.

• Tight credit: Interest rates are low, but increased credit and downpayment requirements are knocking some potential buyers out of the market at this time.

—JR Ball