Window of Opportunity

There'll be more choices, moderating price increases and, at least until the market picks back up, builder incentives. That, combined with low mortgage interest rates, means that it's a terrific time to buy.

But our panel has a warning for fence-sitters: Wait at your own peril. While new homes in Northeast Florida will continue to be affordable relative to other Florida markets, the current buyer's market won't last long. In fact, it may already be changing as inventories are worked off.

According to Norman Bray, executive vice president of Amelia Island Company, the second quarter of 2007 will probably mark a return to normalcy-which means a relative equilibrium between supply and demand. "I think excess inventory will be absorbed at a more rapid pace than in previous slowdowns," Bray says. "I don't have a crystal ball, but hopefully by the middle of next year we'll see the market pick up aggressively again."

Sherry Davidson, president of Davidson Realty, agrees. "Realistically, it may be second quarter this year that the market will start to correct," she says. "When that happens, it won't be as easy to get concessions from builders and prices will begin to rise."

Economic factors point to a strengthening market, say panelists. Walt O'Shea, Hines vice president, notes that some 18,000 new jobs have been created locally over the past year. That, plus high-profile relocation announcements from Fidelity Investments and Merrill Lynch, "are a testament to the continued attractiveness of Jacksonville," O'Shea says.

Plus, Northeast Florida boasts a median household income that's 9.7 percent above the national average while median home prices are 12 percent below the national average. That means housing in Jacksonville remains relatively affordable, especially when compared to other Florida markets.

And new homes remain excellent investments, our panelists agree. Most say appreciation should continue in the high single digits up to about 10 percent annually-a solid but sustainable pace over the long haul. Here's what else these industry movers and shakers had to say:

BUILDERS

What is the outlook for your business this year? Do you expect to sell more homes, fewer homes, or about the same?

Riley: There are about twice as many listings on the market right now as in 2005, so we've lowered our 2007 sales and closings projections in some neighborhoods. We're going to continue to sell homes in our current neighborhoods at our projected levels, but obviously the market conditions are somewhat challenging. We think of the current market change as a supply-side correction.

Coppenbarger: I think we expect levels to go back to what they were in 2004, because that was pretty much what the market was pre-investor.

Morris: We expect to sell about the same number in 2007 as we did in 2006, or about 75 homes. We're now in eight communities and we just opened two new communities. We're building in St. Johns, Nassau and Clay counties as well as St. Marys and Palm Coast. St. Johns and Jacksonville" target="_blank">Clay County seem to be the strong growth markets, whereas Nassau and St. Marys are the emerging markets.

What are the major factors influencing your outlook?

Riley: Most builders are currently trying to sell through their existing inventory, so we'll monitor MLS activity to help us gauge market demand. I expect that the market should return to normalized levels-what we saw in 2004 or 2005-starting in mid-to late 2007. Several years ago, we had so much demand and that's now gone the other way. There's about a six-month supply [of new homes for sale] as opposed to the three-month supply in 2005.

Coppenbarger: When people want to buy a house, the first question they ask is, "Do I have a job?" The second question is, "What are interest rates?" I think we still have a very good job market here, and I think interest rates are still pretty good at about 6 percent.

I think there are some parts of the state where the market will stand still, but not here. Single-family home sales in particular won't suffer due to a lack of job growth. I think we'll go back to 2004 levels, but even if we go back to 2003 levels, that's okay. We have a slightly overbuilt situation now, but once that's gone then we'll be building again.

We're opening up about three or four new projects this year, including townhomes in OakLeaf Plantation, condos on the Southside and three single-family developments. Overall, we have a lot of good things happening in Jacksonville, but we just have to manage our inventory a little better.

Morris: Sales were down significantly in 2006 compared to 2005. We had a record sales year in 2005 and we expect a flat year in 2007 due to rising interest rates, completed inventory, increased listings in MLS and longer time to sell.

What are some things you may do differently this year to adapt to changing market conditions? For example, do you plan to use incentives and special promotions?

Riley: The market is in that mode right now, and we do have some incentives, such as special financing. There are probably 100 different loan programs, and we gear our programs to our buyers' needs. Through our lender, CTX Mortgage, we try to give our customers a little better rate than market rate.

Coppenbarger: Mostly what we're doing, especially if buyers are military, teachers or policeman, is buying down the interest rate. And with some people we'll finance for six months so that they can sell their current home.

Morris: Absolutely. We already have some of that in place, and are looking at each community and doing some specialized target marketing. Incentives include buying down mortgage rates, paying closing costs and other contributions and offering golf memberships in Palencia and Amelia National.

It seems that with price increases moderating and inventory up, buyers are in a good position this year versus last year. Do you agree that it's now an ideal time to buy a new home?

Riley: I definitely agree that it's a great time to buy. One of the best reasons is that interest rates are still very attractive, historically speaking, and incentives are helping to make them better. Other economic indicators, like strong job growth, also indicate that it's a great time to buy.

We try to look at each buyer differently and tailor our programs to what will satisfy the buyer most, such as paying closing costs or homeowner's association fees. Each buyer's situation is unique and needs to be handled accordingly.

Coppenbarger: I believe it's about as low as it's going to be, and what typically happens is that people wait too long. It's a real, real good time to buy, and I think if buyers wait the prices will go up.

Morris: Yes, I think it's an excellent time to buy a home, and I think everything will begin to moderate in late 2007 and early 2008. In 2008, I think we'll start to see a rebound.

What are the most requested amenities or upgrades on the new homes you're building?

Riley: All of our communities have some type of recreational feature. Most recently, we've completed a mini-aquatic center at Fleming Island Plantation. As far as upgrades are concerned, they vary greatly by community, type of home and type of homebuyer. For example, what our first-time condominium buyers choose will differ significantly from what a person buying their second single-family home will choose.

Coppenbarger: It depends on the section of town and the product. Our media centers or home entertainment centers are pretty big, and obviously people want to upgrade with wood floors and kitchen cabinets. We're also doing outdoor fireplaces and barbecues, especially in the upper-end homes.

Morris: Most folks are concentrating on their kitchens and requesting upgraded cabinets and granite countertops. Structural options such as bonus rooms are also popular.

Are buyers generally aware of green building?

Riley: We're involved in the Green Built Homes of Florida program with Northeast Florida Builders Assosciation and JEA, but we're not currently marketing any homes with those features. Until we fully participate in that program, we'll continue to develop homes that use products and materials that make them as energy- and water-efficient as possible.

Coppenbarger: Generally our homes are energy-efficient. Many buyers will ask about the efficiency of appliances, windows and the rest of the home. We're putting in tankless water heaters as standard features in our condos. Thirty percent of the heating bill is hot water, and with these heaters, water is only heated when you need it.

Morris: Not very often. We do have a healthy home program, but as far as green building we're still evaluating that for the future. We do use Energy Star appliances.

REALTORS

Which three areas of Northeast Florida would you describe as the most popular for buyers?

Davidson: St. Johns County has been extremely popular, but I don't have firsthand knowledge about other areas. The school system is huge. It's been ranked very high nationally and in Florida. I think the perception of Duval schools as opposed to St. Johns schools is not as high.

Whatley: I really can't narrow it down to three areas. There's so much economic growth in Jacksonville, and so many diversified businesses. Buyers tend to go with what's most convenient or important to them, whether it's to be close to a particular school or work, or to have accessibility to some type of hobby or activity that they're particularly close to. There are a lot of great areas that buyers can choose from.

Bray: Nassau, Duval and St. Johns counties are very, very hot in all different product types, from high-end, waterfront properties to subdivisions with [production] homebuilders such as Centex, Maronda and KB Home.

What do you expect new home appreciation to be in 2007?

Davidson: Even in Jacksonville, all the markets are different. At the Beaches it's still very investment-driven. But in [St. Johns County] we didn't have that situation. We're seeing the supply go down here already, and it's just guessing how many months before we get back to a balance. I do see appreciation in new homes, but I think it will be less than 5 percent.

Whatley: I think it will be in the single digits, anywhere between 4 and 7 percent. We've had double-digit appreciation, but there's been adjustment in the last three or four months. That may change in 2008 because election years really do have interesting things that happen around them, and the presidential election could really make a difference.

Bray: I certainly don't think it'll be what it's been in the prior three or four years. There's no way we can sustain that, but I think that even with this slowdown, we won't have any sellers who'll have to lower their price if it's priced at market value. Next year, appreciation will be more in the 6 to 10 percent range rather than the 20 percent we've seen in the last two or three years.

If a buyer has been sitting on the sidelines, what are the top reasons you would give to him or her to jump into the market now?

Davidson: I think everybody wants to know that they're buying at the bottom of the market, and right now builders are giving incentives. Once prices start going back up, you won't see the same incentives. I think there's a lot to be said for buying when it's close to the bottom rather than waiting for prices to start to rise.

Whatley: If that's the house you really like, don't wait because you'll only be sorry. I feel that prices are going to go up because this is a growing community with a very diverse economic base. And the sooner you buy and lock in your homestead exemption, then your taxes can't go up by more than three percent a year as long as [the home you buy] is your homestead.

Bray: It's certainly a buyer's market, there's no doubt about it. There's much more property to select from, and there are people who don't have to sell. But in any area where you're looking to buy, you can probably find a large selection of homes in your price range. And interest rates are even more favorable now than they were several months ago.

So I would advise buyers that if they find something that they like, and they think the price is reasonable, then do the due-diligence and buy it. As they say in real estate, "the best time to buy was last year," so don't let that happen to you.

DEVELOPERS

Where do you expect to see the most growth in Northeast Florida during 2007 and beyond? Where will the hot spots for development be in 2007?

O'Shea: Residential growth will continue to be fairly well dispersed throughout the metropolitan area. St. Johns County continues to grow at an increasing rate; the Northside and Westside have proven to be viable residential markets, and the urban core areas, including downtown, are at the beginning of resurgence. The Beaches and the Southside are as attractive as ever, but continued growth will slow down due to scarcity of land and/or entitlements.

Wilford: I don't think that there's really any change as far as hot spots. The Northside continues to experience good growth and all the Northside communities that we're in [are doing well]. The same thing along the C.R. 210 corridor in St. Johns County and the Julington Creek area. The hot spots aren't going to change, they'll continue to grow.

Cassala: Northwest St. Johns County has over 55,000 units in the pipeline. The new DRI region in Nassau County [37,000 acres in Yulee] and new DRIs in Hastings mean growth in those areas. Still, I think Northwest St. Johns County is the hot spot for development in '07.

What are the three biggest challenges developers now face in launching new communities?

O'Shea: In the short term, restoring the market's confidence in housing as a stable, long-term investment is the most important challenge we face as an industry. Once we've moved past the constant comparisons to 2005 that are tainting market perceptions, our challenges will return to development-related issues such as securing entitlements, acquiring land in good locations for reasonable prices and executing effective local and regional marketing programs.

Setting aside all of the hype regarding the slowdown in the housing market and looking at the underlying economic drivers, the Jacksonville area presents a very positive outlook. We enjoy a great quality of life with incredible natural resources to enjoy and a growing cultural and entertainment community. These features will make this area increasingly attractive relative to other Florida markets for those looking for a second home or retirement home.

Wilford: In 2006, there was an oversupply of inventory homes. It's [the market change] keeping people on the couch, so we have to wait until we hit an equilibrium. I think it will take the better part of this year for the pendulum to swing back.

We're bullish on the market, and we were so busy for so long that many builders lost a little bit of control. Now we're taking it slower and analyzing talent and systems to be ready when the market comes back. I've never seen the market run at this pace for so long. Now we can get back to what we do best-building homes for people who want to live in them.

Cassala: Receiving entitlements and permits, managing ever-increasing infrastructure costs and meeting concurrency issues.

Although 2005 was something of a fluke, do you expect Northeast Florida to continue growing at the pace established over the last five years?

O'Shea: The "perfect storm" of factors converged in 2005, when there was an unsustainable surge in demand for homes and condos nationwide. Many other markets were inundated with investor purchases that will hinder the recovery of the residential markets.

We're already seeing signs of the market leveling off in Jacksonville, with builder inventories declining by over 10 percent from the second to third quarter this year. I would expect inventories to reach normalized levels in the next three to six months, and then see prices beginning to climb at more measured rates-between eight and 10 percent annually

Wilford: I think we'll get back to more normalization, like it was in '04, and I hope it doesn't get back to the '05 pace. I think the market is correcting itself instead of going too fast. I don't think any company should grow more than 15 percent a year.

Cassala: Although I can hardly imagine we'll return to the pace experienced [in the past two years], I do think the future looks bright. The project pipeline in Northwest St. Johns County alone is at 55,000 units.

What is the hottest development trend you see on the horizon?

O'Shea: As a firm, Hines has a taken a position on the leading edge of the nationwide green building initiative. Hines buildings are designed with many energy-efficient features that allow us to operate them at a discount to our competitive set.

In regard to residential development, innovative mixed-use communities that are designed to promote alternative transportation and minimize vehicle trips per day, such as our Palencia community in St. Augustine, will outperform more conventional subdivisions in sales volume and price. This trend also bodes well for the resurgence of downtown Jacksonville. High-density residential development in urban areas utilizes far less energy to construct and operate than a single-family home of comparable size in the suburbs.

These trends are further supported by the socially oriented interests of many buyers in the baby boomers and echo-boomers, groups that will have a significant influence on the residential development patterns of the next several decades.

Wilford: The buyers are very sophisticated. There's so much on the Internet and HGTV, so their awareness for quality is peaked and they're asking more questions.

Consumers want upgrades, such as gourmet kitchens and glamour baths, and larger square footage. Our houses today are probably 50 percent larger than years ago. They also want to customize and change plans, and they ask about energy- efficiency. Buyers are more informed, and they keep us thinking.

Cassala: Not necessarily a completely new trend, but soon to make an impact locally is the idea of highly amenitized, master-planned communities that are based on traditional neighborhood designs versus suburban subdivisions.