Wait till late '08

Wait till late '08

Real Estate by Jean Gruss | Editor/Lee-Collier

Residential real estate won't rebound until prices fall further. A turnaround won't happen until late 2008 or early 2009, one expert says.

Home prices declined by double-digit percentage rates last year in Southwest Florida, but they need to fall further to set the stage for a rebound, says one Naples-based housing expert.

"We're halfway through the correction in the marketplace," says Mike Timmerman, managing director of the Florida office of Hanley Wood Market Intelligence in Naples, a firm that tracks residential construction and sales.

Timmerman says he doesn't expect the residential housing market to turn around until late 2008 or early 2009. "We're flushing out the people who made a quick buck," he says, referring to the speculators who drove the home-buying frenzy across Southwest Florida in 2004 and 2005. "We've got another 12 to 18 months to go."

That view is somewhat more pessimistic than other forecasts. Housing economists with Metrostudy, for example, say Florida's fundamental demographic support for housing demand are positive indicators for a housing turnaround by the middle of this year. Still, some are slightly more pessimistic than Timmerman; Florida economist Hank Fishkind doesn't expect a turnaround until 2009.

Homebuilders already have responded by pulling fewer building permits. The number of residential permits pulled in 2006 declined 31% in Collier County and they fell 32% in Lee County.

Meanwhile, resales of single-family homes have been falling by double-digit percentage rates from Tampa to Naples. Prices have come down, too, according to the Florida Association of Realtors.

In November, the median sales price of a home in Fort Myers-Cape Coral dropped 12% versus the same month in 2005. In Naples, median sales prices fell 13%, in Sarasota-Bradenton they dropped 18% and in Punta Gorda they declined by 8%. In Tampa-St. Petersburg-Clearwater, median sales prices bucked the trend by rising 3% in November.

A closer look at re-sales in Lee and Collier counties show that lowest-priced and the highest-priced homes are selling briskly. "The stuff in the middle is not moving," Timmerman says.

For example, there's a 59-month supply of homes priced between $500,000 to $750,000 in Collier. In Lee County, there's a 69-month supply of homes in the $750,000 to $1-million-price range. "That's where we need prices reduced," Timmerman says. A more reasonable supply of homes is typically nine to 12 months. Currently, there's a 15-month supply of homes priced under $200,000 in Lee County.

Timmerman says prices will decline further after the area's home-selling season ends in late April. That's because the pace of sales has continued to moderate and many investors will throw in the towel because they can't afford to continue paying the mortgage. "Prices must come down," he says. "After season, lots of people won't be able to hold on."

One big worry is that homeowners who bought homes using adjustable mortgages will see rates jump and won't be able to afford their payments. It's not clear how many homes will be listed for sale when that happens, but there's evidence that the numbers could be large. "We're starting to see foreclosures rise significantly," Timmerman says.

Indeed, foreclosures are up along the Gulf Coast, according to data from Largo-based Foreclosuredaily.com. Foreclosures were up 239% in Lee County in November versus the same month in 2005. In Sarasota-Manatee foreclosures rose 99% and in Charlotte County they were up 90%. In Hillsborough, they rose 38% and in Pinellas they increased by 53%.

"We really haven't begun to see the full flush-out of the market," Timmerman says. The last time the region experienced a similar downturn was in the early 1990s, when the first Gulf War halted sales.

Meanwhile, developers and builders are starting to offer incentives and lowering prices to clear out inventory. However, the drop in prices means that buyers are more likely to break a contract to buy a less expensive home, even if it means walking away from a 20% deposit.

Contract cancellations are rising and the outlook is grim. "If prices erode further, you're going to see that happening more," Timmerman says.

The rental market is also affecting home sales. Prospective buyers have found that renting is more beneficial as they wait for home prices to fall. Meanwhile, speculators who are waiting for the market to rebound are renting their homes. "People just want to cover the mortgage," Timmerman says. "That's also going to put significant pressure on prices."

Review summary

Trend. Southwest Florida's residential real estate market won't rebound until late 2008 or early 2009.

Industry. Residential real estate

Key. Home prices will continue to drop in 2007.

Top communities for housing starts

Annual home starts have been falling from Tampa to Naples. In the third quarter, single-family housing starts dropped 33% in the Tampa Bay market, according to housing economists at Metrostudy. Meanwhile, starts fell 27% in the Sarasota-Bradenton market and they declined 26% in the Naples-Fort Myers market.

Here are the top 10 communities in each area as of the third quarter of 2006, ranked by annual new-home starts:

Tampa Bay market

Sun City Center (Hillsborough) 551

Bay Park (Hillsborough) 491

FishHawk Ranch (Hillsborough) 477

Meadow Pointe (Pasco) 399

Sterling Hill (Hernando) 392

West Shore Yacht Club (Hillsborough) 317

Country Walk (Pasco) 307

Ballantrae (Pasco) 296

Concord Station (Pasco) 295

Citrus Hill (Citrus) 295

Sarasota-Bradenton market

Rotonda (Charlotte) 528

Stoneybrook at Venice (Sarasota) 337

Lakewood Ranch (Manatee) 319

Heritage Harbour (Manatee) 292

South Gulf Cove (Charlotte) 268

Cascades (Manatee) 213

Covered Bridge Estates (Manatee) 202

Burnt Store (Charlotte) 197

Island Walk at West Villages (Sarasota) 187

Palmer Ranch (Sarasota) 187

Naples-Fort Myers market

Gateway (Lee) 577

Village Walk of Bonita Springs (Lee) 397

Verona Walk (Collier) 373

Bella Terra (Lee) 369

Coral Lakes (Lee) 331

Sandoval (Lee) 248

Olympia Pointe (Lee) 239

Verandah (Lee) 236

Reflection Lake of Naples (Collier) 196

The Reserve at Estero (Lee) 186

Source: Metrostudy