Prognosis for 2011: Slow Improvement

Few real-estate industry professionals are sorry to see 2010 end. But will 2011 be any better? Florida Homebuyer Jacksonville assembled a panel of movers and shakers in the building, development and real-estate sales and asked their opinions. The consensus? Yes, 2011 will be better than 2010 – but improvement will come slowly. Here’s what this all-star group of local heavy hitters had to say:

BUILDERS

Do you expect the industry to rebound in 2011?

Ginder: Yes, although I believe that “rebound” is probably not the proper term. The housing market will likely not return to the levels of 2005-2006 any time soon. The complexity of how we got to this point is multifaceted – homebuilders, investors, bankers, mortgage brokers and Wall Street were all involved. So it stands to reason that the rebound will be cautious and slow. As consumer confidence returns, the housing industry will slowly rebound and the market will find it’s equilibrium of supply and demand once again.

Lendry: We are seeing some signs of recovery I believe the market will come back at a steady pace over the next several years.

Moore: I expect the market to improve in 2011, although “rebound” may be too strong a word. I think 2011 will be a year that we see consistent improvements, but a robust rebound may be a little further into the future.

What is the single most important thing that must happen for building to return to more normal levels?

Ginder: There are many things that need to occur for the housing market to return to a normal level. Mortgage lending standards must be revisited, consumer confidence must improve and the inventory of foreclosures must be reduced. The most important thing, however, is that the economy must grow jobs. Simply put, it’s hard, if not impossible, to buy anything without a job – and pretty scary to make a large purchase, such as a home, with unemployment at levels not seen before by most people.

Lendry: Consumer confidence in the housing market, and in the overall economy, needs to improve.

Moore: Jobs. People must have faith that the economy is turning around before we’ll see significant changes in the real estate market. Secondarily, the foreclosure situation needs to be resolved. I’d also like to see banks, lenders and investors step up to the plate and start managing their businesses. We’ve been hearing for years that institutional investors don’t have the personnel to handle the volume, but they’ve had time to resolve this situation. This lack of action is contributing significantly to the devaluation of property we’ve seen over the last few years.

Will 2011 be a good time to buy, or did those who sat out the downturn miss their window of opportunity?

Ginder: I believe that 2010 was an excellent time to buy a home and that 2011 will be as good a time or better because of continued low prices and excellent interest rates. Timing the market has always been a tricky proposition. If you are looking for a new home, trying to time the bottom may end up costing you a great deal on the house that suits you the best.

Lendry: There are still good opportunities. The cost of new construction is extremely competitive, and consumers can get a lot of value for their money.

Moore: 2011 will still be an excellent time to purchase a home. The rates may inch up from historic lows, but they’ll still be outstanding. The price of homes for sale will also be remarkably low.

REALTORS

Has the drop in interest rates stirred interest among your clients?

Palmer: Yes, probably more so now than ever since a mortgage payment is often less than rent. Plus, buyers will still get the tax benefits. I doubt we’ll ever see rates this low again in our lifetime.

Leslie: I do believe these rates have generated sales activity that otherwise would not have taken place. We need these rates in order to help our market continue to improve in the months ahead.

Chaplin: The combination of low rates and reduced prices have brought in some customers who’ve been able to take advantage of these difficult times.

Have your clients encountered difficulty getting mortgage loans?

Palmer: We’ve gone back to the basics where people have to qualify based on their debt-to-income ratios, so yes, it’s harder. But I feel it makes sense. They also have to put money down. FHAis the least amount, at 3.5 percent. Even a little down payment, however, makes the loan more secure.

Leslie: Mortgage underwriting guidelines have certainly changed over the last few months, but that’s not necessarily a bad thing in the longrun. Although some buyers have run into problems getting financing, overall I believe that those who are truly in a position to purchase homes have been able to do so.

Chaplin: Lending standards are much stricter today, and that will probably prove to be a good thing in years to come. Our biggest problem, in our resort areas today, is finding loans for condominiums. While there have been some challenges in all markets, we’ve found that working with our tried-and-true mortgage groups, we’ve had more successes than losses.

Do you encourage your clients to look at short-sales and foreclosures?

Palmer: You have to at least show them, since 50 to 60 percent of the resale business is distressed properties. Everyone wants a “good deal.” But with a short sale, you get into a very long and trying experience and many times the deal doesn’t happen at all. Foreclosures are different; the bank owns the properties and they want them off their books. But in both cases, you’re buying property as-is, which can be scary. As an alternative, I encourage buyers to at least explore the options in new construction. Buyers may be surprised to find that for not much more than the cost of a short sale or a foreclosure, they can get a brand-new home with a warranty and without all the work of getting a distressed property back into livable condition.

Leslie: Distressed properties aren’t right for everyone, and we council our customers on the pros and cons and let them make their own decisions. Foreclosures are not much different than traditional transactions, with the possible exception of the property being sold as-is in some cases. Short sales are a different issue; not all buyers have the luxury of waiting for the lender or lenders to make a decision.

Chaplin: We used to run from them. Kidding aside, while I surely wouldn’t use the word “encourage,” we do have customers who have done well with these properties. We also know that the market won’t improve until distressed properties are for the most part gone, so we might as well do what we can to get them sold.

DEVELOPERS

Do you expect large projects that had been put on hold during the downturn to re-emerge in 2011?

Smith: Yes. In some areas across Florida there are certain communities that were put on hold when the market retreated. Now, many of those same communities have been sold and repurchased at a discount. This ultimately translates into home prices more consistent with today’s market. These are communities where the location was good, even in these tougher times, but the land was simply too high-priced for builders to create value.

Towers: No, for three reasons: Lack of bank financing; lack of demand; and uncertainty in future market conditions.

Do you expect growth to resume in 2011? If so, what parts of the region will experience this growth?

Smith: I’m not sure we’ll see huge growth, but we are seeing signs of stabilization, which is one of the first steps toward recovery. I have confidence in a place like Jacksonville. From our ever-expanding port business to Cecil
Commerce Center to our outstanding healthcare system to our strong military presence, we have the ingredients for speedy recovery.

Towers: I don’t expect any significant growth to resume until mid- to late- 2011. However, I believe 2012 will be better, especially in north and central Clay County, north St. Johns County and south Duval County, especially in the Beaches. My focus now is developing only in certain market segments where we can comfortably anticipate market demand and provide affordable lots. Also, we’re looking at areas without large impact fees, development fees or long-term debt obligations such as a CDD.

Are you actively looking for land for future development?

Smith: Yes. Many of the “A” finished lot locations have been cherry-picked. We have now begun to focus our energy on entitled, but undeveloped, land. There’s a plethora of this type of land still on the market today. It’s perfect for our strategy at GreenPointe, where we act as both developer and builder.

Towers: Yes, always. Right now we’re working on a 699-lot single-family subdivision in Clay County called Forest Hammock at OakLeaf Plantation as well as Village Center at OakLeaf Plantation, Wexford Chase and Arbor Mill.

As a developer, what’s the biggest challenge you expect to face in 2010?

Smith: Timing. We don’t want to jump in too early, but if we wait too long we may miss the window of opportunity. We follow the market closely and are relentless in our evaluation of housing and overall economic data. We make very strategic decisions based on the highest quality information out there. In the end, we have to have faith in our decisions and the market.

Towers: Financing, privately and through financial institutions; competition from short sales and foreclosures; bonding; national and regional builders focusing on Jacksonville; and home demand.

NEFBA President Looks for
Slow, Steady Upturn in 2011

Everyone is hoping 2011 will be a year of recovery for the homebuilding industry. what’s your opinion?

We’re all hoping to see an upturn in the market. We’re continuing to see steady activity and our members are resilient. One thing we know for sure – if 2011 is the year of recovery, it’s going to be a slower, more steady return to viability.

What are the major issues, political or otherwise, that could derail a recovery?

Great question. Hometown Democracy would have been the major political issue that would have derailed the recovery. Thanks to our business leaders, our realtors and our industry, we soundly defeated this ill-advised proposition with 70 percent of the vote. I’ve never been more impressed with the association than I was during the Vote No on 4 campaign. I just loved sending those anti-growth activists packing.

What plans do you have to deal with other issues?

One of the most critical services NEFBA provides is our Political Action Committee (PAC) and Governmental Affairs. The PAC works diligently to select good candidates and then support them financially and with manpower during the campaign. Once the candidate is elected, our Governmental Affairs Committee helps them understand why our industry is critical to the economic engine.

What are your specific goals as president of NEFBA?

We’ll focus on supporting our members, helping our community and protecting our industry.

NEFBA has fared better than many builders associations through the downturn? why do you think that is?

Another great observation. Historically we’ve been one of the strongest local associations in the nation. Simply stated, NEFBA has had a long line of leaders who have placed the industry above self. They’ve created an atmosphere of hard work and fiscal responsibility, and it’s hard to go wrong with that combination. I’m excited to have the opportunity to follow in their footsteps.

How has the recent downturn changed the way homebuilders do business?

Pretty simple. We appreciate our industry much more, we run our businesses more efficiently and we have worked very hard to survive. Going through the fire makes you stronger on the other side. Now, let’s keep moving forward.