Sounds of Recovery: New home building is back
(November 2012) Shh. Do you hear it? It’s not quite the deafening cacophony of six years ago but the chug-chug of construction machinery and the thunk-thunk of hammers are returning to a neighborhood near you. Virtually silenced during the lingering recession years, homebuilders are starting to, well, build homes again as foreclosure deals and rock-bottom pricing for existing homes become a thing of the past. A dwindling supply of resale homes, an uptick in prices and prolonged bidding wars are proving advantageous to builders. Buyers who held off purchasing that Southwest Florida home can now build a home of their own — and not inherit someone else’s problems or dirt — at a cost comparable to a resale and with a warranty.
“Days on the market and inventory are down while prices are beginning to rise,” says Mark Wilson, president of London Bay Homes in Naples, who recently attended a two-day conference of the country’s top 12 private builders. “We’re starting to see some urgency. It’s not just in Naples but across the country. All of the builders at the meeting, the best in their markets, are seeing increasing sales and demand. Housing starts are expected to triple by the end of 2015.”
Trend setting
Nationally, new-home construction starts increased 15 percent in September — the largest jump in four years — while second-quarter prices for existing homes posted their largest gain in seven years. In Naples and Collier County, pending third-quarter sales posted a 12 percent increase compared to 2011 and in September alone rose to 22 percent, according to the Naples Area Board of Realtors. Thirdquarter inventory declined 12 percent and the median closed price rose 10 percent, indicating the pendulum is beginning to swing to a seller’s market.
“Buyers have been sitting on the sidelines concerned about the economy and where it’s going. Now they’re making that investment,” says Cammie Longenecker, vice president of sales and marketing for Taylor Morrison’s west Florida division. “Prices are still affordable in the state of Florida and interest rates are at record lows. Some buyers have made an offer on a home with multiple bids only to be unsuccessful and realize they could have built a home instead of waiting.”
Sales of newly built single-family homes rose 5.7 percent in September — the fastest pace since April 2010, according to the National Association of Home Builders. Despite a small increase in new-home inventory on the market in September, the total number of completed new homes hit at an all-time low. September’s supply was the tightest since October 2005.
The build-or-buy, now-or-never mentality fueling new construction helps with unemployment rates, creating three new jobs for each new home built.
“It’s good news: Everyone is getting back to work,” says Leslie Weed, executive officer for the Charlotte DeSoto Building Industry Association. “Builders are getting exciting and their attitude is positive.”
Ronald Oskey is one of those builders. During the association’s recent expo his Punta Gorda-based Harbor Home Builders landed two contracts — one for an existing spec home and another on-your-own-lot job. Mr. Oskey and his two business partners launched the company a year ago.
“We were noticing as the foreclosure market died off, people were still buying if the home was priced right,” he says. “We figured if we could build the right home at the right price it would sell. The homes that were selling in Punta Gorda before the market fell all had the same thing — three bedrooms, two or three baths, a three-car garage, granite counters, wood cabinets, crown molding and 8-foot doors. It took us six months to pull it together at a price that would compete with the used market.”
The formula, so far, has proven a success. The company has several homes under construction or in the works in Cape Coral, Punta Gorda and Port Charlotte. The most popular floor plan has three bedrooms, three baths, a den and is priced at $285,000. Prices are slightly higher in Cape Coral because of impact fees, says Mr. Oskey. “There’s construction everywhere in the south Cape.”
Despite popular opinion, the housing industry is not the leading indicator of economic recovery, according to The Shinn Group, a Colorado firm that works with the country’s top homebuilders to improve performance and profitability. Its Nov. 1 “State of the Housing Industry” notes the industry accounts for only 2.3 percent of the gross domestic product. The report also concludes the housing market bottomed out in January 2009 and has been “scraping the bottom for three years.”
New home sales hit a historic low in 2011 with just 306,000 and median sales prices bottomed out at $214,300 last November. Prices have been steadily improving since, reaching $242,400 in September. The Shinn Group projects new home construction will return to normal activity by 2015 with 1.3 to 1.5 million starts.
Rising prices
Those increasing price tags are due in part to rising material costs. Builders survived the recession by reducing prices and slashing profit margins. So did vendors, says Mr. Wilson, who recently received notice of a 25 percent increase from his drywall supplier. “Material and labor increases — anywhere from eight to 20 percent — are inevitable. These upward trends in the real estate market will allow vendors to raise their prices to generate more profit.”
“We had to get prices in line with resales. If you wanted to be in business, you had to reset your expectations,” says David Fry, president and CEO of WCI Communities, the Bonita Springs-based company that emerged from bankruptcy protection in 2010 and launched its nearly sold-out Manchester Square community the following February. “Now, construction costs have gone up four percent just in the last 10 months and we are expecting even higher costs in 2013. On the flip side, we’ve raised the sales prices of our new homes. People looking for the bottom have missed it.”
WCI sold 267 new homes in its seven South Florida communities in 2011. Its 2012 sales to date number 400.
Return of the community
New master-planned communities — those gated neighborhoods with community fitness centers, swimming pools and tidy little neighborhoods of multi- and single-family homes — are also making a comeback, although on a less grandiose scale. WCI, once one of Florida’s leading luxury builders and planned-community developers, took baby steps, re-entering the market with the 35-acre Manchester Square and its 117 attached villa and singlefamily homes priced from $220,000. Today, with fewer than 25 homes remaining, entry level pricing has increased to $224,900 and one ready-to-move-in spec home is just under $500,000.
Taylor Morrison, which has 20 active communities from Tampa to Naples, is planning two new Collier County launches, says Ms. Longenecker. One is reportedly the former 1,800-acre Mirasol development three miles east of I-75 on Immokalee Road. The community will have a golf course, lighted tennis courts, a swim center and 799 homes, touts the company’s web site. The second project, on 152 acres off of Collier Boulevard adjacent to Physicians Regional, will offer 443 villas and singlefamily homes.
Taylor Morrison also builds new homes in Lucaya and Tortuga, both in Fort Myers. It purchased the remaining homesites at Sandoval from the Bonita Bay Group last December and recently broke ground on the Cape Coral community’s final 100 acres.
Mr. Wilson made a similar move, purchasing the remaining at Mediterra in Mediterra. New and existing homes sales this year surpassed all 2011 sales months ago and Mr. Wilson expects the community to end the year over $100 million.
“My logic in taking over Mediterra is that is one of the leading luxury communities in the area. The golf courses are fabulous, it has great amenities, its own beach club and the golf club is secure and sold out and there’s a waiting list. Mediterra is almost 80 percent sold out,” he says.
London Bay is currently building two single-family custom homes, each worth more than $3 million, and in the past two weeks has signed contracts for $3.5 million and $1.2 million projects. A model home recently sold for more than $3.5 million.
“We’ve had strong inquiries,” says Mr. Wilson. “We’re also seeing strong demand in the lower price point, the $1 million to $1.5 million range. People have sold their home up north and have cash available... The risk of pulling the trigger is not the same risk it was 12 to 18 months ago.”
Taylor Morrison also has a showcase home for sale in Mediterra and held onto more than 40 single- and multi-family lots in Treviso Bay, biding its time for a market rebound. Miami-based Lennar bought the community at a foreclosure auction last year. Although no plans have been formally announced, the community, home to the area’s only PGA Tour Tournament Players’ Club golf course, isn’t expected to be as grand as originally planned.
“We purchased homesites when Treviso Bay was launched and have been calculating the market return,” says Ms. Longenecker. “With the market decline we waited patiently.”
Since its return with Manchester Square, WCI has progressively relaunched new home sales in four other Southwest Florida communities, building up to the higher price points in Tiburón adjacent to The Ritz-Carlton Golf Resort in Naples and The Colony Golf & Bay Club in Bonita Springs.
Mr. Fry says the timing was right for the reintroduction of The Colony and a neighborhood of three-story buildings offering three-bedroom penthouse condominiums priced from the mid-$400,000s.
“We held off because of the high-end nature of the community,” he says. “Homes priced at $700,000 were not selling as fast. We purposely delayed bringing The Colony back on line knowing the luxury market was not ready. Now, we are coming to market with homes under $500,000 and plan a second product release in a month priced from $600,000 to $700,000.”
WCI is regaining its confidence, thanks to sales at Manchester Square, which Mr. Fry says “sold beyond our expectations. We’re working on a couple of other land deals. One is in Collier County as a replacement for Manchester Square but on a little larger scale with 350 homes and a little higher pricing.”
As other housing markets enter their slower selling seasons, Southwest Florida is poised for prime time, the Novemberthrough April “high season,” when northerners, vacationers and seasonal residents flock to our shores.
Mr. Wilson expects a banner year.
“Most people spent the last four or five years watching the market downturn,” he says. “If you’re 60 to 65, it was a big deal putting off a decision on a future place to live, knowing you’ve lost those years. The economically informed are absorbing all the information out there. They’re seeing inventory coming down, fewer days on the market and construction costs going up.”
Increased visitor traffic at sales center is also another harbinger of a profitable season.
“Guest visits are a leading indicator,” Mr. Fry says. “A year ago we were averaging 120 a week at our seven sales offices. This year we’re seeing 180 a week. We’re cautiously optimistic.”
“We’re confident about the future,” says Mr. Wilson. “We believe by March or April next year, there will be an acute shortage of product in the luxury market. Continued increase in demand and in pricing, national statistics and pretty consistent projections from economists show we’re onto three or four years of steady and high-level growth.”
Click here to view the original article from Florida Weekly. Written by: Nancy Theoret
