NEWS

NEWS

September 08, 2016

Southwest Florida building boom is a boon to buyers

By: Vicki Parsons - IT

Submitted by: June Fletcher

12:02 p.m. EDT September 3, 2016

After a long recessionary dry spell, a flood of new homes inundated the Southwest Florida housing market over the past six years.

Now the question becomes: Is this flood about to recede?

“The new home market in Lee and Collier County has softened along with the rest of the residential market,” said Mike Timmerman, a Naples-based economic adviser to builders. “The supply has increased, and demand has slowed, which is putting pressure on pricing.”

While starts and closings remain positive for the present, permits — an indication of future growth — have started to taper off.

In Collier County the year-to-date permits (reported through July) were down for both single-family and multifamily homes.

Single-family home permits fell 2.4 percent, to 1,667 from 1,708, while multifamily homes decreased 5.3 percent, to 54 from 57.

In Lee County, year-to-date permits (reported through August) for single-family homes were up barely 1 percent, but multifamily permits tumbled 78.2 percent, to 254 from 1,166.

Timmerman said he considers the temperature of the current housing market cool and adds “the sales pace of new residential communities has slowed over the past 18 months, especially those communities which have similar product and pricing strategies.”

And that’s dried up traffic in a way that’s got some in the industry like Bill Fox, division construction manager for Southwest Florida for Frontdoor Communities in Naples, a bit worried.

Over the summer, traffic at his communities, which typically run in the $700,000 to $1 million range, has dropped to about 10 visitors a week from about 30 or 40 a week, he said.

Fox, who’s been in the industry for four decades, blames the slowdown partly on last year’s warm winter up north, which kept potential shoppers away, as well as uncertainty about the U.S. elections.

The strong dollar, which makes it more profitable for foreign buyers from Canada and other countries to sell than to buy, is having an effect, too.

And bad publicity from the Zika outbreak, which is making headlines on Florida’s east coast, also could affect us at some point, he said.

construction workers

Constructions workers build the framework for a new home at the Bonita Lakes community in Bonita Springs on Aug. 25, 2016. (Photo: Nicole Raucheisen/Naples Daily News)

Too many homes

But the biggest reason for the market cool down, industry experts agree, is oversupply.

“Builders got too exuberant and built too many houses,” said David Cobb, southern regional director of the new home research group MetroStudy, at a meeting Wednesday of the Collier Building Industry Association in Naples.

Wrongly expecting a significant increase in demand that didn’t materialize, “builders got into a supply trap,” he said, leaving them with too much inventory starting late last year — particularly in Collier County.

In a report on the second quarter, Cobb noted that in Collier County, housing inventory totaled 1,967 units, equating to 10.8 months of supply, higher than the nine months of supply he considers “normal” for the Southwest Florida market,

In Lee County, where houses are more affordable and absorbed more quickly, inventory totaled 1,380 units, or 7.3 months of supply.

Cobb expects builders will eliminate excess supply soon by cutting back on building and offering buyers more deals and incentives.

“Builders will have to be careful about what spec inventory they do,” he said.

But even with incentives, it’s getting harder to get buyers to commit to a new home, said Patty Campbell, division president of GL Homes in Naples.

That’s because the existing home market is becoming oversupplied, too.

In July, overall existing home inventory rose 36 percent, to 4,801 units from 3,518 units a year earlier, while both closed and pending sales dropped by double-digits, the Naples Area Board of Realtors reported.

So while buyers would jump on a new home when the market was hot and supply tight, confident that they’d be able to sell their existing home quickly, now they’re not as sure that will happen.

“They want to sell their old house before they buy a new one,” Campbell said.

construction workers

Constructions workers pave an in-ground pool at the Bonita Lakes community in Bonita Springs on Aug. 25, 2016. (Photo: Nicole Raucheisen/Naples Daily News)

A boon for buyers

But for now buyers who are ready to commit are benefiting from the excess new home supply, said Rick Fioretti, president of NABOR.

“In the early part of year you couldn’t get a builder to give you a dollar,” he said. “Now there are incentives, and now they immediately come out to us for support.”

Buyers are typically nabbing around $10,000 to $15,000 in incentives that offset some of the price increases builders had been making when the market was hotter, he said.

And some, like Naples medical device distributor Joe Massaro, have done even better than that.

Massaro, 54, had been looking for a new home for more than a year when he came across a two-bedroom home he liked at Greyhawk Golf Club of the Everglades.

To entice him to buy the $455,000 home, the builder, Pulte Homes, offered him $12,000 off his mortgage costs, an upgrade to the Craftsman-style elevation he wanted, and about $5,000 off his lot costs, he said.

Massaro was thrilled. “I got an outstanding deal,” he said.

But he’s a little sorry he didn’t wait a little longer.

“Now I hear they’re giving away free pools,” he said.

Josh Graeve, vice president of sales of PulteGroup Southwest Florida, said his company is offering incentives in many of its communities — and also did last year — with the most common incentive a designer option upgrade.

But builders aren’t offering incentives everywhere, especially in neighborhoods in lower price ranges where sales are still hot.

“We don’t offer any incentives,” said Andrea McLendon, a spokeswoman for the developer of Ave Maria, which MetroStudy identified as the region’s top selling community for six consecutive quarters.

Year to date there have been 239 sales in Ave Maria, compared with 212 sales for the same period last year.

“Our homes still begin in the high $100,000s, and I don’t know any other community with the same amenities where they do,” she said.

Jonathon Pentecost, division president of D.R. Horton, the nation’s largest homebuilder in both closings and revenue, said its best-selling homes in the Southwest Florida market are its lowest-priced brands, Express Homes and Freedom Homes, which begin at below $200,000 in Lee County and $300,000 in Collier County.

“We generally find that if we price our homes in line with the market, we sell our homes without incentives,” he said.

At the opposite end of the market, sales are usually discretionary and less affected by forces that influence the rest of the housing market.

For instance, a 7,600-square-foot new home at 3110 Gin Lane in Port Royal with five bedrooms, six baths and a wine room that holds 1,000 bottles recently sold for $14.2 million.

But overall, the sales pace for high-end homes is off from last year, said Mike Diamond, president of Diamond Custom Homes in Naples. He blames the election and volatility in oil prices, the stock market and international currency markets for making wealthy buyers skittish.

“There are a lot of reasons for buyers to sit on the sidelines,” he said. “The market is restraining itself.”

construction workers

A constructions worker builds the framework for a home at the Bonita Lakes community in Bonita Springs on Aug. 25, 2016. (Photo: Nicole Raucheisen/Naples Daily News)

Looking for land

Big production builders are a bellwether for any housing market, since they can always move on when their margins are squeezed.

And national and regional builders say they remain bullish about Southwest Florida’s market due to continued strong in-migration and employment.

“The past few months have been more competitive as a seller as there are more options for buyers to consider — but the demand from buyers remains very strong,” said Paul Erhardt, president of the south region for WCI Communities.

Yet problems finding land at the right price and in desirable locations are significant headwinds, several big builders said.

Graeve, of PulteGroup, said land inventory has decreased since this time last year as new builders entered the market looking to build rental communities and assisted living facilities.

PulteGroup mostly buys raw land and is purchasing developed lots to bring communities to market quickly.

But “as large parcels have become rarer throughout Southwest Florida, we are adding boutique infill locations,” Graeve said.

Echoing several other builders, Pentecost, of D.R. Horton, said, “Our biggest challenge is not in availability but in price expectations from land sellers.”

While some new long-planned developments, such as Minto’s 4,000-acre Rural Lands West in Collier County and Kitson & Partner’s 17,000-acre Babcock Ranch in Charlotte County, will keep a few builders busy for years to come, other big builders are scrambling for suitable land.

And ultimately, that may keep building from getting out of control, as it did during the boom a decade ago.

“You can only go so far west in Lee and Collier, so we are getting more creative with land deals,” said Kevin Brown, division vice president of Toll Brothers. “We are looking north of Lee to see if that makes sense. Anything is on the table.”

“Builders need land to keep growing,” he said.

house in bonita hills

An available homesite sits vacant in a residental area of the Bonita Lakes community in Bonita Springs on Aug. 25, 2016. (Photo: Nicole Raucheisen/Naples Daily News)