A GRADUAL REBOUND
How do local real estate specialists sum up their forecasts for Orlando’s housing market in 2008? In a word, they’re optimistic. And they may well be right on track.
Indeed, local news stories are starting to report glimmers of hope. Inventories are beginning to shrink, prices are beginning to stabilize and fence-sitting buyers are finally venturing out to have a look.
Real estate brokerages are beefing up their offices anticipating a turnaround. One, Jack Meeks, who sold his Real Estate Professionals brokerage three years ago, has bought it back and is adding a new office in Orlando" target="_blank">Lake County.
Builders have revamped some models and are offering them at prices well below the current median price of around $240,000, according to the Orlando Regional Realtor Association. KB Home, for example, has a full line of new homes in communities throughout Central Florida priced at or below $200,000.
The truth is, people continue moving to the Orlando area—and they all will need a place to live. According to the Metro Orlando Economic Development Commission (EDC), 2,480 people are moving to Florida each week, with 432 of them ending up in Central Florida.
That’s 22,474 new neighbors every year. And for now, at least, these newcomers will find that it’s still a buyer’s market. But for how much longer?
Orlando Homebuyer
contacted local experts representing new homes, resales and developments and asked them what 2008 is likely to hold.Our authorities included Steve Moreira, president of the Orlando Regional Realtor Association, and Don Wetherington, president of the Home Builders Association of Metro Orlando. Also from the builder’s perspective, we talked to George Glance, division president of KB Home Orlando, and Jeff Agar, division president of Ryland Homes.
Ken Bennett, vice president and regional sales manager for Watson Realty’s Central Florida Division, and Kelly Price, broker/owner of Kelly Price and Company, offered views from the resale side of the equation.
Developer experts included Steve Walsh, managing partner of Broad Street Partners, developers of Tradition Towers in downtown Orlando and The Residences at Ravinia in Maitland; Jim Lentz, chairman of Harmony Development Company; Jim Zboril, president of Lake Nona Property Holdings; and Jim Doyle, vice president of marketing and sales at LandMar Realty, developers of Sugarloaf Mountain in Minneola.
While no one is forecasting a banner year for 2008, there’s a consensus that the worst of the housing recession has passed. And Watson’s Bennett offers a reminder that real estate remains a solid long-term investment.
"I believe that ninety-four percent of the world’s wealthiest people have amassed their fortunes through real estate investment," says Bennett. "That’s a difficult number to argue with, isn’t it?"
BUILDERS
What is your overall outlook for the 2008 Orlando-area real estate market?
Wetherington:
My outlook for 2008 is that pricing will stabilize and that savvy buyers and investors will be buying by the spring. In Central Florida, people will be making their move by the end of the first quarter.Glance:
New home sales will likely be lower in 2008 as builders cautiously proceed through the market adjustments. There’ll be fewer speculative starts and the opening of some new communities will be postponed.However, the decline will be moderate due to lower-than-expected sales in the third and fourth quarters of 2007. I expect median resale prices to decline as compelling new-construction prices add pressure to resale inventory.
Agar:
The market will be stabilizing in 2008. Most of the homebuilder inventory was sold by the end of 2007, so reductions in pricing should all be over.Sales will most likely be flat in 2008, but it will still be a competitive market and incentives other than price will play heavily into the equation. Early 2008 will be a great time to build a home with a reputable builder, if you get in before the market starts heading up again.
What are the most pressing challenges in your industry for 2008?
Wetherington:
Two words: Hometown Democracy. That’s our single biggest challenge. That will stifle the industry if it comes to pass. We are watching it very closely. (Editor’s Note: The Florida Hometown Democracy initiative seeks to amend the state constitution to give voters the power to accept or reject certain land-use changes.)Glance:
Impact fees have tripled over the past five years, during the housing-start run-up. As demand returns to normal levels, the methodology used to calculate impact fee increases is no longer valid.When impact fees outpace the cost of a finished lot, affordability is severely impacted—and the damage to the overall economy has been significant.
Agar:
Financing will be the biggest challenge for buyers and for builders. Builders will be requiring bigger deposits from the customers and lenders will require larger equity positions from builders due to liquidity concerns.The no-growth sentiment, impact fees and the way the industry is regulated are always challenging.
What new trends can buyers expect to see from your companies and from other Orlando-area builders this year?
Wetherington:
The green building evolution is going to continue. If you’re not thinking green, you’re not thinking. We need to be responsible and buyers want green.Another trend, which is being fueled by the baby boomers, is "aging in place." This concept means homes are built to adapt to the changing needs of the owners as they grow older.
I also see smaller square-footage homes to make home ownership more affordable for first-time buyers.
Glance:
KB Home has partnered with two of the most powerful brands in the country, Disney and Martha Stewart, and our "Built-to-Order" business model is all about choice, offering even more options for our buyers.In addition, KB Home will continue to focus on its environmental program, myEarth, offering energy efficient options through our KB Home Studio. We’ve seen a 40 percent increase in homebuyers selecting green options through this program.
Agar:
Ryland Homes will be putting forth a green program in 2008 that emphasizes "High Performance Homes." The program saves customers on ownership costs and utility bills. It’s a win-win, and is similar to programs we’ve put together in other Florida markets.DEVELOPERS
How do you see the pace of development in Central Florida in the upcoming year?
Walsh:
I believe that commercial and multifamily residential development, specifically rental units, will be steady. Of course, condominium development and sales will drop sharply.Lentz:
I think ‘08 will be the start of a prolonged recovery for the housing industry. New-home sales over the past few months have outpaced new home starts.Doyle:
We anticipate there will be very few new developments moving forward, particularly new private golf club communities. LandMar feels that our Sugarloaf Mountain in Minneola will have one of the few new golf courses coming into the market.Zboril:
Unfortunately, the single-family and townhome residential development pace will probably remain at depressed levels in 2008 in Central Florida.I also foresee a greater price separation between those projects with strong fundamentals in place—good schools, job growth and transportation access—and those projects without those elements. However, the development pace of "garden-style" multifamily and industrial projects looks good in 2008 due to historically low land availability.
What are the top challenges that face developers planning new communities?
Walsh:
The top challenges for the coming year will continue to be government, both local and state, and their interference with timely development and construction.Local political groups continue to increase their involvement in projects, resulting in slowdowns and increased costs. Financing will be more difficult due to the turmoil in the financial markets and the inclination of banks to pull back a bit.
Lentz:
The top barrier to new-community development in ‘08 and possibly into ‘09 will be the reluctance on the part of traditional lenders to provide adequate capital at reasonable rates for new residential lot development.Since it takes between 12 and 24 months to prepare a lot for a new home, a shortage of developed lot inventory is very likely to occur in about three to five years. Unfortunately, this shortage will likely occur exactly when employment opportunities and demand for new homes will be at its greatest.
Another barrier will be increased governmental requirements, which will continue to add to the pre- and post-development cost and thereby put a lid on some new projects.
Doyle:
The challenge will be delivering communities with finished amenities in a slow real estate market and slowing economy.Zboril:
Obviously, the timing of the residential market rebound will continue to be the biggest challenge facing Central Florida developers; although, unlike some markets elsewhere in the country, it’s not a question of "if" but a question of "when."Builders, developers and homeowners need to remain engaged in the regulatory process during this downturn. Several new changes are being proposed that could have a further detrimental affect on the economy and on long-term affordability—including the Hometown Democracy movement.
What do you see as the hot spots for new development in Central Florida in 2008?
Walsh:
The core area of Orlando will continue to be strong. All of the area within a 10-mile radius of downtown will be strong for new development.Lentz:
The new Medical City being developed at Lake Nona, along with the continued recognition of our world-class university, our airport, our attractions and our commitment to the arts will mean a true transformation for all of Central Florida.Doyle:
The Clermont area is clearly in the path of growth for Orlando and Central Florida. Job formation continues to be strong in Orlando and access via Florida’s Turnpike and S.R. 408 make Clermont a strong option for new-home buyers. In addition, the low dollar is generating more interest from foreign buyers.Zboril:
Things continue to be solid in Southeast Orlando due to the focus there on jobs, education and quality products. The airport has historically been a great driver of economic development, and will continue to do so.Obviously, we see Lake Nona as the hotspot. With the Burnham Institute and the UCF College of Medicine now under construction, and with our regional lifestyle center slated to break ground next year, interest in Lake Nona has never been stronger.
What are some key development trends we should look for in the near future?
Walsh:
We’ll see more and more "active-adult" communities for people over 55. Also, rents will trend up sharply for apartments due to the sub-prime crisis and the resulting impact on first-time homebuyers.Sites available for multifamily rental developments that are fully entitled are also becoming more rare. Therefore, production of new units will not meet demand.
Lentz:
It used to be that "location, location, location" were the three key words for any development. While that may still be true in many respects, the trend is clearly indicating that "green, green, green" or "sustainable, sustainable, sustainable" will become the essentials.Without a real commitment to these elements by developers, it’s very unlikely projects will get done or be financially successful.
Doyle:
Lifestyle is key in the wake of the investor-driven housing boom and bust. Buyers are looking for real neighborhoods in great locations with amenities and activities that create a sense of place. Communities that can deliver that will continue to be popular.Zboril:
The green movement has definitely picked up steam, and I see that trend continuing in the future. As a responsible developer who takes stewardship of our land holdings very seriously, we’re working to incorporate sustainable development and building practices into our operations in a meaningful way.I foresee that more green features will be available to the average homebuyer. It should become more common for homebuyers to be discussing the green features or energy efficiency of their home with their neighbors.
REALTORS
What should buyers expect in terms of home pricing, availability and appreciation during the upcoming year?Moreira:
With all the homes on the market, 2008 will not be a great year for appreciation, [but] once the market corrects, Florida homes will continue to steadily rise in value.The silver lining is that ‘08 will offer a tremendous opportunity to find exactly the home you want to live in at a very good price.
Price:
It is still a buyer’s market. Buyers have the luxury of looking around and buying what they want. Rates are still terrific and there are lots of choices.As far as appreciation, we may not see the high-percentage appreciation levels we saw leading up to last year. But home prices are starting to hold, and a home in Orlando will always appreciate.
Bennett:
I think that home prices have pretty much bottomed out in Central Florida, as we’ve given up most of the excessive gains that we experienced during 2004-2006.I also feel that inventory will continue to remain high throughout 2008, affording buyers a great opportunity to select and demand the very best for their investment. Home values should keep pace with inflation in most price ranges during 2008.
What advice do you have for a buyer who has been waiting out the fluctuating market?
Moreira:
It is absolutely a buyer’s market. Get pre-qualified for a mortgage so you can quickly close the right deal. Engage a top-notch Realtor? to represent you, one who’s willing to show you multiple properties and write good offers.Price:
Buying a home is an experience. It’s where you settle your family and your life. The ones buying homes right now are not the investors; they’re families filling the neighborhoods. And Central Florida is a great place to raise a family.Bennett:
Real estate is similar to any other sort of an investment. To be successful, you have to look at it long-term.There hasn’t been a better time to purchase real estate in this country than right now. If you don’t believe me, ask Donald Trump, and he’ll echo the same sentiment. The longer you wait, the more equity and tax-shelter benefit you’ll lose.
Sean Snaith
UCF Institute for Economic Competitiveness
Orlando is equipped with the economic fundamentals it needs to ward off a recession and begin a housing turnaround this year, says Dr. Sean Snaith, Director of the University of Central Florida Institute for Economic Competitiveness.
The economist agrees with local real-estate professionals who believe the turning point will happen in 2008—but exactly when is hard to pinpoint.
"I think we still have to slog through some mud," says Snaith, noting that the first quarter of 2008 will mark the region’s economic low point.
Nonetheless, Snaith believes that with continued employment and a population growth, Orlando will see a pickup starting in the second quarter.
For new-home sales, Snaith says "we will see upward movement" as the year progresses, most noticeably near the year’s end.
He adds that because builders took painful but necessary steps in 2007, such as instituting price reductions and curtailing starts, the industry is poised to heal more quickly.
Developers should have less concerns as the housing market continues through its correction next year, says Snaith, since they are involved with projects that are much less time intensive.
"Ten years down the road, for example, all indications are that the Orlando area will be one of the strongest areas in the state."