On a broiling hot afternoon, Paul A. Mignott chats from a lawn chair inside a neighbor's open garage in Chesterfield County's Magnolia Green subdivision. Mignott, a registered nurse who specializes in pediatric medicine, bought his house next door on Great Willow Drive for $353,157 in March at a relatively low 5.25-percent fixed interest rate.

Outside, the air is loud with jigsaws and hammers while more houses are built on quarter-acre lots in the subdivision, which features a championship golf course. “I love it here and I'm going to have to learn to play golf,” says Mignott, who moved from Newport News.

Great Willow Drive represents limited progress for the gigantic and troubled Magnolia Green, which acts as a bellwether of sorts for much of Richmond's real estate market. Housing sales have been slammed by the recession of 2007 to 2009. The market is sputtering in fits and starts like the anemic and job-short economic recovery.

The original plan for Magnolia Green had been for 3,500 houses in a mix of prices with many in the area of $300,000 to $800,000. After a foreclosure and a new manager, the project is shifting its focus to less expensive, entry-level homes in the $200,000 to $300,000 range, such as those on Great Willow Drive, says Robert Atack, president of Atack Properties, which took over management earlier this year.

The Richmond area has seen a recent bounce in home sales. The Richmond Association of Realtors reports that sales in the second quarter have increased 23 percent over the same period a year ago, but officials say it's largely because of the Obama administration's tax break for first-time buyers and others who fit certain criteria, which expired April 30.

“We're seeing closings in May and June on homes with contracts that beat the April 30 deadline,” says Laura Lafayette, chief executive of the Realtors association.

The recent uptick can be misleading. The revival involves primarily lower-priced houses, which bring in less tax revenue. Also in hot demand are rental units, which Chesterfield County Administrator Jay Stegmaier says are being leased up so quickly there's a shortage. At the opposite end there's a limited market for houses that cost more than $800,000, officials say.

What's not selling or being built much are houses in the upper-middle category, mostly because buyers can't meet stiffer credit standards or don't have the money for a 30 percent down payment, which many banks are requiring despite low interest rates.

Once desirable mid-to-upper-priced properties are white elephants, which comes as sobering news for the fast-growing suburban counties of Chesterfield, Henrico and Hanover. For three decades the counties drank a rich wine of new, upper-end luxury houses and the considerable tax revenues they brought in. Coming to grips with the new reality is a struggle.

“We're 37 months into this,” Henrico County Administrator Virgil Hazelett says. “We're not going to return to business as usual as it was three or five years ago.”

Henrico's general fund budget of $741 million is about 4 percent smaller than the previous one and eliminates 101 positions. The county benefits by having better industry and commercial real estate, which generate more tax revenue than residential-dependent Chesterfield. The flip side is that Henrico has taken a drubbing in office space because of the demise of big companies Circuit City and LandAmerica, which maintain big offices in the county. Hazelett says the county's lost $21 million to $22 million in real estate revenue.

Chesterfield has been harder hit. Dwindling real estate tax revenues have forced serious belt-tightening: Most county libraries will be closed every Thursday after the county eliminated 35 positions; fees are going up for curbside recycling and trash disposal at county dumps. But Stegmaier says the county has snagged new businesses such as Israeli food processor Sabra and is working on two big office deals that he can't discuss.

Nationally, the uncertain real estate market is being felt and is probably worse than in the Richmond area. Existing home sales in June fell 5.1 percent — an annual rate of 5.37 million, according to data from the National Association of Realtors. National declines in building permits are near post World War II lows.

Some uptick in new housing construction is also evident. Hazelett says Henrico has seen 59 building permits in the first six months of 2010 while there were only 103 for all of 2009. He expects 38 more this month. Mike Toalson, executive vice president of the Home Builders Association of Virginia, says there's been improvement in the state, especially in Northern Virginia with its many high-paying federal government jobs. The extreme heat has hurt construction, but the deadline for closing the Obama tax credits has been extended to Sept. 30, boosting construction, he says.

Still, about one quarter of Richmond's housing market involves foreclosed properties, according to realtytrac.com. And the financial crisis of 2008-'09 was so intense that it likely will cement suburban sprawl boundaries at approximately today's outermost locations. Blown away were such megaprojects as 5,140-house Roseland in Chesterfield, the 3,200-unit Wilton on the James in eastern Henrico and eastern Chesterfield's Branner Station.

Magnolia Green seems to be a contrary case and might provide a guide to what's next in new housing regionally. Its grand plans were stymied when iStar Financial, a real estate trust that finances Magnolia Green, foreclosed on a major builder last year, bringing the project to a screeching halt. Innsbrook-based Atack Properties was brought in as the new manager earlier this year while large home-building companies including HH Hunt, Ryan Homes and Royal Dominion Homes started picking up lots in the project at cut-rate prices, Atack says.

Those companies tend to concentrate on building lower-priced homes with smaller square footage and lots that are easier for homebuyers to finance. That's the case on Great Willow Drive, where Ryan Homes is building several of the new properties. Atack says his group has sold about 30 houses in recent months and has completed the first nine holes of an 18-hole golf course. “We're putting about $1 million a month into it and have been working on new entrances,” he says.

While Atack says “there have been no changes to the engineering plan,” it seems obvious that Magnolia Green will consist of lower-priced starter houses rather than the mix of higher-priced McMansions initially promoted. They could be built eventually. The second-quarter bump appears to be a one-time phenomenon. Hazelett says the effects of the downturn will continue for quite some time. A return to the good old days of easy credit and good jobs may not return.