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“Florida seems to have turned a corner.”
That assessment comes from Leslie Deutch, a vice president with John Burns Real Estate Consulting, who spoke last week on a conference call with private builders moderated by the investment firm UBS Homebuilding. With that observation, Deutch joins a growing chorus of industry watchers that is singing the same tune: Florida’s long-besieged housing market is, if not out of its recessionary funk, definitely moving in the right direction.
Optimists admittedly are jumping onto a rickety bandwagon, given Florida’s still-fragile economy: Its unemployment rate hovers just below 10%, and the state’s foreclosure rate still ranks seventh nationally, according to RealtyTrac. But the mood of Florida builders is far less gloomy than a year ago. “It’s all relative, but we’re feeling and showing better results,” says Carl Mulac, CEO of Florida-based Avatar Properties. “Traffic is up, and people are converting into sales. The market’s been down so long that any news is good news.”
Last November, nearly 250 respondents to a survey conducted by the Florida Home Builders Association found more than three fifths saying they were seeing “lots” or “some” improvement in their markets. That compares to less than 30% of those polled in November 2010. And where more than one quarter of the builders polled in late 2010 said they had stopped building houses altogether, only 6.5% answering last November’s survey had stepped away from residential construction.
“It’s been slow and nothing dramatic, but our members are seeing more activity and traffic,” says Paul Thompson, the HBA’s executive director. Anecdotally, Thompson notes that one builder he met with recently in Tallahassee had secured four remodeling projects last weekend alone; another custom builder had just signed contracts to build three 7,000-plus-square-foot homes.
Thompson says business in the Sarasota-Manatee area has been strong, the Panhandle area “is recovering,” and Jacksonville “is coming around.”
Confident, but cautious
Across the state, in fact, reports about how Florida’s housing markets are getting up off of the mat are more common these days. Last week, the South Florida Business Journal cited McGraw-Hill Construction estimates that residential construction contracts in South Florida jumped last year by 35% to $1.33 billion. The Tampa Bay Times quoted Clear Capital, a housing valuation and analytics firm, predicting that home prices will expand by 7.4% in the Tampa Bay market in 2012, by 11.7% in Orlando, and by 8.8% in Miami.
(It’s worth noting, however, that home prices in Miami and Tampa continued to fall in November 2011 compared to a year earlier, according to the S&P/Case-Shiller Home Price Index for that month, which was released Tuesday.)
Tampa’s latest arrivals, Meritage Homes and NVR, provide further evidence of builders’ confidence that at least some of Florida’s markets are ready to be harvested again. “The Tampa area is one of the most attractive home building markets in the southeastern United States, with the second-largest economy in Florida and strong job growth expected,” Meritage’s CEO Steve Hilton told the Phoenix Business Journal. Meritage plans to start building there by this spring.
It remains to be seen, though, how quickly and pervasively this recovery will take hold. Nearly three quarters of the builders polled by the Florida HBA didn’t think market conditions would get better for their companies specifically for at least another year.
And some builders and developers are taking a more patient view of Florida’s housing revival. “We like Florida for the longer time,” says Mark Porath, founder and CEO of Hearthstone, the California-based developer that has been entitling land in Florida. He tells Builder that the only missing ingredient right now is sales volume. “We see these [developments] as the future. It’s obviously not today. We created value [on the land] through entitlements. Now you can sell it, or sit on it; you can mothball it and develop it when the market value returns.”
Chuck Piper, a land consultant who is entitling land for Hearthstone, says builders are looking for positions “to support their business plan for the next two to five years.” He’s seeing demand picking up in Central Florida and Jacksonville.
Deutch of John Burns Real Estate Consulting bases her optimism about Florida’s future on five factors: palpably stronger demand from retirees and second-home buyers for active-adult communities; an expanding employment base spurred by tourism and the medicare services industry; pent-up demand for desirable locations, such as Lakewood Ranch, where new-home sales outpaced resales by 12% in 2011; limited new construction, which should bode well for home values; and a resetting of land prices, on which at least two big builders—Lennar and D.R. Horton—have been capitalizing by gobbling up properties.
Foreclosures attracting investors
What continues to hold Florida back, says Thompson of the state’s HBA, are banks’ restrictive lending practices. “It’s still tough to get [buyers] qualified” for mortgages, he says. He notes that a lot of the activity builders are seeing is coming from remodeling and cash sales, neither of which typically involves bank financing. There is also a ton of foreclosed homes on the market, although Thompson notes that many of them have been available for so long that “they aren’t competing” with new homes any more.
Those foreclosures that are still marketable are attracting more investors. Bloomberg reported on Tuesday that the private equity firm GTIS Partners intends to spend $1 billon through 2016 to acquire 200,000 single-family foreclosed homes in Florida, California, Arizona, and Nevada, which GTIS plans to convert to rentals. Oaktree Capital Management (which owns Builder’s parent company Hanley Wood) intends to spend $450 million to buy foreclosed homes. (When asked how he thought these investors might alter the market’s competitive landscape, Avatar’s Mulac laughs and says “I’m not sure. You don’t know how these properties are going to come back onto the market.)
The conversion of for-sale condos to rentals has helped stabilize South Florida’s housing market, says Thompson, who adds that the state’s unsold housing inventory in general is gradually being worked through. Resales rose by 8% last year, which according to Florida Realtors was the third consecutive year of gains. In the Tampa-St. Petersburg-Clearwater market alone, the number of available homes for sale in December 2011, 18,066, was 36% less than in the same month a year earlier.
The one area of the state that’s still struggling is southeast Florida. Thompson points specifically to Naples and Fort Myers as cities where housing is still waiting for buyers to get off the fence.