Land Rush

Just a few years ago, the Central Florida housing market was hot, hot, hot. Land was selling for premium prices and homebuilders could barely keep up with demand for spacious, amenity-filled and increasingly expensive homes.

But the high times didn’t last. The real estate market stumbled then went into freefall. Suddenly, new homes were competing with a glut of foreclosures and short sales, in which banks agree to allow strapped homeowners to sell their properties for less than the balance of the mortgage.

Today, many builders are responding to economic realities not by hibernating but by buying up ready-to-build lots at steep discounts. They’re buying from developers who’ve slashed the price of land, other builders ready to take a loss on land purchased during the boom and banks that have repossessed vacant tracts on which subdivisions had been planned.

“The big builders have a vor-acious appetite for dirt (land) right now,” says Jay Lewis, president of Surrey Homes.

The flurry of buying suggests that builders are preparing for a housing market rebound. New-home inventory has tightened and resale inventory has dropped, which are good signs. The hitch, however, involves competition from distressed properties.

Not everyone has the capital to acquire new property right now, Lewis says, but those who do will be better positioned to stay in business and turn a profit despite foreclosures and resales skewing the market.

Builders who purchase land at bargain-basement prices can build and sell new homes at lower prices. Or they can hold onto the land until prices have recovered and sell for a profit to builders who decide it’s time to gear up again.

Bill Traback, director of sales and marketing at D.R. Horton, says his company is buying finished lots—which means lots with access to roads and utilities—for less than it would cost to buy and develop raw land.

“What we’re typically doing is dealing with builders who’re in trouble and need to liquidate or banks after they’ve taken possession,” Trayback says. “We’re able to pick up those lots at a great price and we can build on them for far less money than in the past. That way we can compete with short sales.”

Even some smaller local builders are snagging lots at discounted prices. Surrey Homes is buying. So is Century Homes, says Todd Ermisch, the company’s director of construction. Both companies are new to the Orlando market.

“If you look, you can find some very, very good deals on land,” Ermisch says. “But it’s not easy. A lot of stuff was bought up a while back, and at such a high price they’re not willing to let it go for a big loss. You can find it here and there, and when you do, you scoop it up.”

Builders generally don’t like to give specifics when discussing their land acquisitions, but a number of local builders say lot prices have indeed come down significantly—and that they’re buying while there are bargains to be had.

The best buys are on finished lots in Central Florida and other regions that were hit hardest by the housing market downturn. At the peak of the building boom, developed lots were selling for $70,000 to $80,000, Ermisch says. “Today these same lots might cost around $30,000 to $35,000,” he adds.

Beazer Homes, M/I Homes, Meritage Homes and Ashton Woods Homes are also buying lots in Central Florida. Lennar Corporation closed a deal with the real estate investment firm Starwood Land Ventures LLC earlier this year to acquire or option more than 2,700 homesites in 38 communities across Florida, including Orlando.

“We’re very pleased to work with Starwood on this transaction and we view this deal as a major step forward for Lennar’s growth in the state of Florida ,” says Fred Rothman, regional president for Lennar.

But in this unstable economic environment, in which unemployment remains high and there are so many distressed properties coming onto the market, are buyers looking for new homes?
Yes, says Ermisch, of Century Homes.

“People are tired of fighting for foreclosures and short sales,” Ermish says. “More and more people are finding that the buying process is tough. And they’re finding that they have to spend a lot of money to make these homes livable. They’re getting frustrated and are turning to new homes.”

And many new homes are truly bargains these days. Century Homes, for example, is building homes for less than $200,000 with large garages, oversized closets and computer tech centers.  “We just opened our models and the response has been amazing,” Ermisch says.

Home sales have been showing improvement in 2010, which could be a sign the market has started to recover. But foreclosures and short sales have accounted for the majority of sales.

Lewis says he can’t predict when the housing market will recover, but he says many buyers are taking the plunge now because they recognize that there might never be a better time to buy. 
Interest rates are favorable and housing prices are low.

Plus, Lewis says, he’s expecting a surge in sales as buyers rush to take advantage of an $8,000 federal tax credit for first-time buyers, which expires at the end of April. Move-up buyers may qualify for a $6,500 credit.

But what will happen once the tax credits expire? “Who knows what’s going to happen after April 30?” Traback says. “The tax credits have helped people to understand that this is probably as good as it’s going to get.”

The government program has been a huge help, says Ermisch, who estimates that about 90 percent of Century Homes’ buyers are first-timers who are taking advantage of the tax credit. “I hope that it doesn’t just fall off when the tax credit is gone,” he adds. “I think it’s going to hurt,  but I think people will still be buying.”

The key, Lewis says, is to “continue to mine good locations. You’ve got to be creative. You’ve got to have dirt in the right place and you’ve got to have a good product. You’re going to need good land positions in key core market locations.”