FINDING AN EDGE
Without a doubt, it’s a confusing time in the real estate market.
On one hand, existing single-family home sales in Northeast Florida declined by 38 percent and there were 30 percent fewer new homes built last year than in 2005.
On the other hand, slowing sales and rising inventory means more bargains for buyers as builders try to work down excesses.
How long will the buyer’s market last? Florida just recorded 60 consecutive months of job growth, which means plenty of people are still relocating and will need places to live.
Likewise, Northeast Florida’s underlying economy remains strong and its lifestyle is no less appealing today than it was two years ago, during the housing boom.
So what will happen over the next 12 months? We’ve assembled a high-powered panel of builders, developers and real estate professionals who’ll offer some insight.
From the building industry, we talked to Randy Long of J.A. Long, Richard Dalton of Morrison Homes and Glenn Layton of Woodside Homes. Weighing in on development issues were Paul Fletcher of Fletcher Management Company, Jay McGarvey of McGarvey Residential Communities and Joel Embry of Amelia Park Development.
And our Realtor experts were Rob Holland of Marsh Landing Realty, Mary Ann Bongiorno of the St. Johns office of Watson Realty and Bonnie Siecker of Century 21 Dames Point Realty. Siecker is also president of the Northeast Florida Association of Realtors (NEFAR).
All agree that 2008 won’t see a return to the frenzied building and buying levels of 2005. But they also agree that activity will begin to pick back up—and that buyers now have a rare, and likely temporary, opportunity.
Why? First, in Northeast Florida there are nearly double the number of homes for sale today than there were a year ago at this time. Second, excess inventory has eased upward pressure on prices. And third, mortgage interest rates are still hovering under seven percent.
Developers and builders are also getting more creative about setting themselves apart from the competition, says J.A. Long Chief Operating Officer Randy Long. "They’re using green design, equipping entire neighborhoods with natural gas, and making hot items like summer kitchens or mother-in-law suites standard amenities," Long notes.
The best news is that buying a home remains an excellent long-term investment by just about every measure.
"Real estate is a home, a shelter from the elements, a hedge against inflation and a place to raise your family," says broker Rob Holland of Marsh Landing Realty. "All with tax benefits."
Here’s what else our panelists had to say about what to expect in the housing market this year:
BUILDERS
What is the outlook for the building industry for 2008?Long:
The market still has an oversupply of investor resales and new homes, but I think that recovery will continue slowly.There are still a lot of buyers out there because of relocations, people desiring bigger or nicer homes and enlarging families—including a segment of the population taking in elderly parents.
Dalton:
I don’t expect major changes in the market this year. In fact, some builders who are not fiscally sound may begin to struggle.But with prices similar to those from 2002-2003 and mortgage rates at historically low levels, there has never been a better time to buy a home.
Layton:
We expect the market to continue to be a challenge, for at least the first part of the year. There are still plenty of sales to be made, however, and builders who position their products well should find sales figures in the average range.The best news is that new home inventories are continuing to equalize and home pricing in our market is very reasonable.
What are the major factors influencing your outlook?
Long:
Unfortunately, there’s still a lot of negativity in the media regarding housing issues. We’ve also heard from customers who are eager to begin designing a custom home but are facing uncertainty in selling their current one.One additional strain on the building industry is the effect of impact fees on new developments.
Dalton:
The most obvious factor is the surplus of available inventory, which has created a classic buyer’s market, with supply outweighing demand.Layton:
When the lending industry is uncertain, as it is right now, consumer confidence is low. But with our local economy continuing to produce new jobs, Jacksonville is still a destination for businesses and buyers who are looking for quality of life at a reasonable price.Are you employing any strategies to help with market conditions?
Long:
We’ve certainly stepped up advertising directly to customers and Realtors and have lowered prices.But we’ve also focused on using innovative and exciting strategies in the homes we’re building, adding popular features like summer kitchens, upgrading to wood and tile flooring and using green building techniques.
Dalton:
We’ve readjusted prices to reflect that it’s a buyer’s market and we’re focusing on selling our current inventory.It’s also important to have a good relationship with Realtors and to make sure they know your company and its market.
Layton:
We actually like the fact that buyers have choices in today’s market. This makes factors like quality of construction and builder confidence important, which helps maintain healthy competition among builders.However, inventory levels are gradually returning to normal, so the larger incentives that were being offered in 2007 will not be as readily available in the coming year.
Are there any new building trends that buyers should be aware of in the upcoming year?
Long:
We expect the popularity of mother-in-law suites for aging parents, outdoor living areas with summer kitchens and multi-use entertainment rooms to continue.Homes will also continue to be more efficient and green as more builders become affiliated with organizations such as the Florida Green Building Coalition.
Dalton:
One trend that we’re seeing is a return to more resident-friendly community designs, such as the Traditional Neighborhood Development, or TND. We’re currently building in Kindlewood, Jacksonville" target="_blank">Clay County’s first TND.These communities have front porches, alleyways and walking trails, and shops and amenities within walking distances of homes. People are enjoying lifestyles that are convenient and a bit old-fashioned.
DEVELOPERS
The last year was admittedly a tough one for many in the industry. What is your prediction for the pace of development during the upcoming year?
Fletcher:
There is a good chance that the housing market will remain flat for an extended period of time.It is, of course, hard to predict the exact timing of a recovery, but the amount of overbuilding and the toughening credit market indicate that it will be another year or two before we see things turn around.
McGarvey:
Residential development should be slow during 2008 due to a high supply of homes and condominiums and tighter restrictions on mortgage qualifications.Development, in both the residential and the commercial/retail sectors, went at such a robust pace from 2005 until recently that there’s now a lot of residual confusion in the equity and debt markets.
Embry:
With home inventories at such a high level, monetary markets are nervous. A substantial recovery is not likely to occur before 2009.What are the top challenges facing developers who are planning new communities?
Fletcher:
Right now, start-ups are extremely difficult for developers. There’s a strong no-growth sentiment in many areas.And when you combine that with entitlement and zoning issues and credit problems, many developers are facing a number of tough challenges.
McGarvey:
In most areas, there are oversupplies of developed lots, existing resale housing and new builder housing. Buyers are still withholding decisions about purchasing homes, which makes pricing new lots and homes unpredictable—and makes the financing of new communities difficult.However, development is still continuing, and builders and developers have been much quicker to adapt to pricing that will be attractive to buyers in their particular markets.
Embry:
If housing demand stays weak throughout the year, inventories will still be unabsorbed and credit markets will stay cautious.This makes it difficult to acquire land and fund development for new communities.
Are there untapped hot spots in the area that are catching the eye of developers?
Fletcher:
There don’t seem to be any hot spots in Northeast Florida at the moment.McGarvey:
Developers are creative capitalists and hot spots occur in localized areas. So developers in those areas will capitalize on local opportunities as they arise.Embry:
Untapped hot spots are hard to find right now. Developers tend to focus on areas where growth is based on job creation. Be on the lookout for new industry investment during the upcoming year.What is the hottest development trend that you see on the horizon?
Fletcher:
This is not necessarily a trend, but I find it encouraging that the long-term demographics in the Southeast region remain very positive.There are somewhere between 65 million and 70 million reasonably affluent baby boomers retiring over the next 10 to 15 years. Significant numbers of them will choose to move to the Southeast, including our area.
We already have great weather going for us, but we’ll also need to keep designing strong communities with well-thought-out amenity packages to attract them to our market.
McGarvey:
One very attractive trend that we’ve embraced in several of our developments is the mixed-use concept—the mixing of retail and office space with residential uses, both single-family and multifamily.Embry:
Accommodation of aging baby boomers is the hottest trend on the horizon.Their transition to a downshifting lifestyle will create tremendous demand for new real estate products and community-based services, such as health care.
REALTORS
What should buyers expect in terms of home pricing, availability and appreciation during the upcoming year?
Holland:
I would look for home prices to continue to stabilize and sales to improve over the next 12 to 18 months. Predicting the market is much more art than science, but there are typical patterns that emerge in a cyclical market like real estate.Hot markets eventually cool and cool markets will begin to warm up if given enough time. Any changes that we see during the next year are likely to be slow and steady.
Bongiorno:
Buyers can expect a decrease in inventory, although the number of homes on the market will still be above normal, and a stabilization of home prices.And with builders continuing to offer excellent incentives and financial deals, homebuyers have a lot of negotiating power, putting them in an excellent position. Home values will likely appreciate 10 to 15 percent.
Siecker:
The sales of the past year were about what they were in 2001 and 2002, which were considered good years, before the abnormally inflated market of 2005 and 2006. This signals a return to normalcy.And with the sufficient inventory of existing homes and sellers pricing their homes reasonably, we expect the market to remain stable and favorable to buyers throughout the year.
Let’s talk resales versus new-home sales? Have they or will they affect each other?
Holland:
Resales and new-home sales are linked at the hip and tend to be related to one another. Often in a growing community like Northeast Florida, resale values tend to lag behind new construction.However, if the pace of construction on new homes continues to slow, it’s only natural that resales will increase due to less new-home competition.
Sales in both of these areas have been down lately because homebuyers are lacking confidence. They tend to make decisions based on emotional questions like "Is this the bottom?" or "Will rates go lower?"
A return of consumer confidence would be a welcome change for 2008.
Bongiorno:
Many builders are offering exciting new products and deals on new homes that are hard to pass up. In order to compete, a resale home needs to be priced right.Renovation is a hot market right now as sellers realize that their homes need to be in excellent condition to compete with the new-home market.
Siecker:
Resales have often proven to be the best value for the money and there’s a good supply of them right now.With builders cutting back on building to reduce their current inventory and overhead, the availability of new homes may diminish—and ultimately drive up their price.
What advice do you have for a buyer who has been waiting out the fluctuating market?
Holland:
As logical as it seems to wait for the market to bottom out, this isn’t always the most realistic goal to have. There are more factors to consider than the absolute lowest sales price—things like interest rates, closing costs or, most importantly, finding the right home.I advise buyers to focus on finding a home that meets their needs, because the enjoyment and satisfaction of living in a home that they truly desire is worth a lot.
Bongiorno:
If you wait for the bottom, it’s often too late. With the combination of the wealth of inventory, the power to negotiate prices and favorable interest rates, it really is a great time to buy.And it’s also an election year, which always offers the elements of hope and change.
Siecker:
The combination of good pricing, affordable interest rates and diverse inventory means that buyers have more choices than ever. Waiting delays the ability to build equity and opens up the possibility that interest rates and home prices will begin to climb.Downing: Housing market will continue to adjust in 2008.
Mark Downing
Managing Partner, CornerStone Homes
President, Northeast Florida Builders Association
What kind of year do you expect the home-building industry to have in 2008?
Downing: Homebuilding was at such out-of-the-ordinary levels in 2005 that we’re still recovering from it today. In the years following that boom, inventories grew and builders have been facing the challenge of selling their existing homes.
I expect 2008 to be a recovery year, with a focus on selling rather than building. By the end of the year, our prediction is that the inventory imbalance will be resolved and the market will return to a more normal state.
If the economy continues to perform well, buyers will realize that right now is an ideal time to buy-and that should help the recovery continue to happen.
What are the biggest challenges your industry faces in providing affordable housing? How can those challenges be overcome?
Downing: Housing in Jacksonville is still a good deal compared to other areas of the state--particularly in the southern regions. Builders, however, still have to face the rising costs of land, the rising costs of building and county and city-imposed fees. All those facgtors drive prices of homes up.
In some areas, small builders have begun to overcome this by purchasing odd lots in nearly-completed developments. Since they can get these lots for a better price, they can build more affordable homes on them. In addition, a few of the national builders are setting aside lots specifically for affordable housing.
Homes have actually become more affordable recently as prices have been reduced in today’s competitive market. But builders will continue to have to find new strategies for keeping costs down.???
Green building is becoming more popular among buyers. Is the industry moving toward a commonly accepted definition of what exactly constitutes a green-built home?
Downing: We’ve certainly become more aware than ever of green building practices and how to use them in new homes. There is not, however, a standard definition of exactly what constitutes a green-built home.
As more and more builders move in that direction, I believe the need for a common definition will be greater. For now, however, many builders are collaborating with such organizations and programs as Energy Star, Florida Water Star,? JEA Green Built Homes of Florida and FPL BuildSmart in order to get direction and methods about green building.
Builders typically receive the brunt of criticism regarding the problems growth brings. How is your industry helping local government deal with growth-related issues?
Downing: We’re helping in several ways. First, one of the most important and overlooked aspects of launching a development is the cost a builder incurs to pay for community infrastructure. This may include water retention ponds and other areas. We typically put up funds in several different areas that the public is often unaware of.
Second, we work with local and state governments to address school and road issues. This is to ensure that the children in the community will be able to attend schools with reasonable class sizes and that the community won’t have impeded access to the major arteries of the city.
In addition, when we’re building a development we work with county planning departments to minimize the impact on the existing infrastructure of that community.
What do you think buyers are looking for in a new home? Do you think their expectations and demands are different today than they were five or ten years ago?
Downing: The expectations depend on the type of home. Buyers in an average price range focus more on the amenities that are included with each home as well as the quality of the standard finishes and the overall look and feel.
Buyers in the upper price ranges typically want to discuss available upgrades and luxury amenities and finishes. They often opt for such features as summer kitchens or bonus suites that can be turned into offices or guest rooms.
Buyers today also have higher expectations of the type of amenities that are offered in communities. Developers are including a wider range of community assets, such as water parks and slide features, walking trails and community parks and state-of-the-art fitness centers and clubhouses.
What are some technological advances that have impacted home building during the last few years?
Downing: There are several new types of technology that have gained popularity over the last several years.
We’re seeing many more tankless water heaters in homes as well as greater access to wireless internet. There are also new advances in water-intrusion protection and in new insulation products.