Halfway There

Halfway There

HOMEBUILDERS by Jean Gruss | Editor/Lee-Collier

National builders are cutting back operations in Southwest Florida. One expert says this spells opportunity for local and regional builders to gain market share.

No one rings a bell when the housing market hits bottom, but Michael Timmerman tries to get as close as he can.

Timmerman, the Florida managing director for Hanley Wood Market Intelligence, whose prescient forecasts of a downturn helped builders prepare, says a homebuilding recovery is 16 to 22 months away in Southwest Florida. From top to bottom and back again, this cycle has a life span of 36 to 42 months, he says. "I think we're halfway there," he says.

That means a recovery isn't likely until 2009, a year longer than some had hoped.

The forecast may be little consolation for builders who are struggling to keep their businesses afloat during these lean times. It mirrors other assessments of the region. For example, Orlando economist Hank Fishkind has called Fort Myers the most overbuilt market in Florida and he expects it to be among the last to feel the recovery.

"The second half is the long half," Timmerman quips.

The good news is that supply of new and existing homes is starting to decline. But based on the annualized pace of sales, there's still a 35-month supply of existing homes for sale in Collier County. In Charlotte, the inventory stands at 24 months and in Lee it's 23 months.

Home sales are still declining, but homebuilders are seeing an uptick in traffic and new listings are not being added at the same rapid pace as before. However, buyers now insist on concessions. "Pricing still has to correct more," Timmerman told a large gathering of builders at a recent meeting of the Urban Land Institute in Estero.

Meanwhile, builders have cut back on the new homes they're building. Timmerman says he's starting to see more homes closing than are being built, an indication that the glut of inventory is beginning to thin.

But there are still significant headwinds. "Insurance and taxes are holding us back," he says. "That's the thing that's hurting us the most."

In particular, those two issues are putting Florida at a disadvantage relative to other states. "Short-term, we're hearing a lot of companies say they can't afford to move to Florida," Timmerman says.

States such as North Carolina are actively courting prospective Florida residents with a message that they're less expensive. "Other states are being very strategic in targeting people who might move to Florida," Timmerman says. In particular, younger retirees don't want to retire in Florida where their parents did.

One way to counter that trend is the possibility of a new north-south highway dubbed the Heartland Parkway linking Interstates 4 near Orlando and 75 where it becomes Alligator Alley. "The Heartland Parkway would be a huge competitive advantage, opening up the center of the state to development," Timmerman says.

Such a highway has significant hurdles before it could become reality, including surviving the political process where it is opposed by anti-growth elements and environmentalists, and finding funding in state coffers that are deeply behind in road-building.

Meanwhile, builders still face headwinds that include money being sucked away from real estate into the strong stock market, an overabundance of cheap rental homes and tighter lending requirements. An increase in auctions also creates the perception that builders are desperate. For example, Levitt and Sons is auctioning 50 luxury town homes in Fort Myers to the highest bidder on June 7, with no minimums.

Meanwhile, Timmerman warns that the recent wave of foreclosures could grow as more adjustable-rate mortgages reset. "Foreclosures may not hit the market for six to 12 months," he says. The rise in foreclosures already has forced lenders to tighten credit, denying loans to those who might have qualified in the past and reducing the number of buyers.

Nearly half of all loans for new homes in Florida in 2006 were done with little or no documentation proving such things as income and net worth, according to data from Credit Suisse. In Fort Myers, for example, 55% of loans for home purchases in 2006 were done based on 95% or greater loans-to-value.

Rising taxes on builders to pay for roads and other infrastructure don't help either. For example, Collier County has the highest impact fees in the state and county commissioners there recently discussed raising them another 40% because of a shortfall due to the slowing real estate market.

On the positive side, Timmerman says population and job growth likely will continue, though perhaps not at the same pace as before. Compared with other U.S. states, Florida ranks fourth in population, labor force, number of businesses, gross-state product and high-tech employment.

"We're moving in the positive direction," Timmerman says.

One silver lining: As national homebuilders retrench, regional and local homebuilders have an opportunity to expand market share.

Review Summary

Industry. Homebuilding

Trend. Housing may rebound in 2009

Key. Remove obstacles such as taxes and insurance to reenergize buyers.

ADVICE

Cancel the cancellations

Cancellations for new homes plague Southwest Florida homebuilders, aggravating the industry's recent decline. Homebuilding consultant Michael Timmerman of Hanley Wood Market Intelligence has this advice to new-home builders:

• Stop increasing discounts every week.

• Take bigger deposits, if you can.

• Provide continuous positive reinforcement to buyers.

• Schedule as many meetings with buyers as you can.

• Work with your lender to provide interim financing, if necessary.

• Watch to see if the buyer stops coming in the sale office.

• Check to make sure option selections are proceeding in an orderly fashion.

• Check periodically on the sale of a buyer's existing home.

• Take fewer contingencies from buyers and don't take a "For Sale by Owner" contingency.

• Uncover hidden and potential objections before closing.

• Resell the ready-to-move-in home as quickly as possible by taking out objectionable options.