Soaring Numbers of Rentals Go Condo

At least 70,800 rental apartments were sold to condominium developers last year, according to Real Capital Analytics, up from 7,800 in 2002. As of June 1, at least 43,900 of the nation’s 19 million apartments have been sold to developers this year. The strongest markets for the conversions are in Southern California and Northern Virginia and the Miami and Las Vegas metro areas. Less expensive than single-family homes, condos are a more affordable alternative for entry-level home buyers. Converted condos in Las Vegas cost $90,000-$150,000, compared to $305,500 for the median price of a new single-family home. While the trend is reducing the stock of rental units, many of the apartments that are converted to condos will eventually return to the marketplace as rentals. As of July 1, the multifamily vacancy rate was 3.6% in the Washington, D.C. area, 2.9% in Miami and 2.7% in San Diego, compared to a projected national average vacancy rate for the year of 5.7%, according to the National Association of Realtors®. (www.usatoday.com)
USA Today (7/6/05); Mary Godleski, AP; Charisse Jones; Matt Reed

[Return to top]

Some ‘Pre-approvals’ Aren’t Worth Ink They’re Printed With

In a national survey of active real estate agents and brokers, unreliable or bogus pre-approval letters were identified as a key cause in breakdowns or postponements in home sales transactions. The agents said that 39% of all pre-approvals issued by Internet-based  lenders, 30%  from mortgage brokers and 20% from national lenders are faulty or “invalid.” The study was conducted by the market research firm of Campbell Communications in Washington, D.C. for Inside Mortgage Finance, a trade publication. The trouble is arising from lenders who issue the pre-approvals without verifying information supplied by the applicants about income, assets and credit. Also, the borrower’s credit score and financial profile can change enough to make a once-valid pre-approval letter useless for purposes of final mortgage underwriting. (www.washingtonpost.com)
Washington Post (7/9/05); Kenneth R. Harney

[Return to top]

Property Seizure Backlash

While the June 23 Supreme Court ruling in the case of Kelo v. City of New London  has emboldened local governments that support the taking of private land for public use or even private development, the decision has also created a backlash in which state legislators from New York to Alaska are urging limits on when a “public use” justifies seizing land. In the wake of the ruling, Florida’s House speaker and Georgia’s Gov. Sonny Perdue are among those who are backing a review of the government’s eminent domain authority. A constitutional amendment has been introduced in the Texas House and Senate to ban the use of eminent domain solely for economic purposes. In the U.S. Congress, Rep. John Cornyn (R-Texas) has introduced a bill to protect homes, small businesses and private property from the powers of eminent domain, and a similar bipartisan bill has been introduced in the House. In an unscientific poll, 98% of the 120,000 people who responded to a question on MSNBC’s Web site said that they disapproved of the Kelo decision. (www.csmonitor.com)
Christian Science Monitor (7/6/05); Adam Karlin

[Return to top]

The Price Is Right in Cobb

High-end, custom home builder Bobby Lunceford, whose homes in Cobb County, Ga., sell for $500,000 to $1.3 million, is building homes that will be affordable to county workers in households earning 80% of the Atlanta area’s median income, which would be about $70,000. While one-third of the households in metro Atlanta earn $40,000 or less, very little housing is being built for them, according to the Atlanta Neighborhood Development Partnership. “In Mableton, Marietta and Atlanta, the folks who work there can’t afford to buy homes there,” Lunceford said. “The cost of land and the cost of construction are pushing the cost of new homes out of the reach of our work force community. That’s what this effort is all about.” A $500,000 grant from the Department of Housing and Urban Development’s HOME program is helping Lunceford to fund his Mitchell Chase subdivision effort. The families that qualify to buy one of his homes will receive assistance with their downpayments and closing costs, including $7,500 interest-free HOME loans. A marketing brochure for the homes says that, “Priority will be given to individuals who contribute to our everyday quality of life (i.e., firefighters, police officers, nurses, schoolteachers, etc.). Construction of Mitchell Chase began at the end of last month. The project was one of six winners in January of NAHB’s “Innovation in Workforce Housing” awards. (www.ajc.com)
Atlanta Journal-Constitution (7/4/05); Aixa M. Pascual

[Return to top]

Hurdles Build Stairway to Success

Orlando, Fla. home builder Alex Hannigan is working hard to complete a picture-perfect New American Home for a photo shoot by Builder magazine scheduled for mid-October. The 6,500-square-foot house is being built on a long and narrow shore lot so that every room takes advantage of the view of Lake Burden. The subdivision where the home is being built has yet to build streets or install infrastructure, so building materials, fuel for the generators, the portable toilets and even drinking water for the workers must be trucked in over dirt roads. The home’s brick walls were stuck together with mortar mixed with water that was pumped out of the lake. The shell of the home is now finished, the interior is framed and installers will soon begin the drywall. Also in progress is work on the home’s tile roof, which will look like cedar shakes when completed. Other features of the home, which is expected to be toured by 10,000 attendees of the International Builders’ Show in January, will include: a “faucet” that shoots a stream of water from a mirror into a basin, a mirror in the garage, a vanishing-edge lakefront pool and wheelchair accessibility. It will become the first New American Home to be certified as “green” and will place a greater emphasis on amenities than bedrooms. (www.orlandosentinel.com)
Orlando Sentinel (4/3/05); Teresa Burney

[Return to top]

Labor Shortages an Obstacle to U.S. Home Building

Offering its prospective home buyers with a small range of floor plans and options so that contactors can build more homes in a shorter period of time is one of the ways that Pulte Homes is coping with a chronic labor shortage in the construction industry that NAHB estimates represents a shortfall of 60,000-80,000 workers annually. The big builder is also looking for exclusive deals with contractors, or to hire them outright, Pulte Chief Executive Richard Dugas said at the recent Reuters Real Estate Summit at the news agency’s headquarters in New York. Last year, Pulte formed a 50-50 joint venture with Pratte Development Co., a provider of wood frames and concrete in Arizona and Nevada, and it expects to buy the other half of the company in the coming year. Dugas reported that his company has had trouble finding framers in Phoenix. Unlike constraints on building materials, Robert Toll, CEO of Toll Brothers, said at the summit that, “Labor shortages are something we can’t buy our way out of, so we’re not producing as fast as we would like.” (www.reuters.com)
Reuters News (7/1/05)

[Return to top]

Pulte CEO Builds Housing Business in Different Way

Although some analysts argue that large land holdings could turn into a liability if the nation’s hot housing market cools down, Richard Dugas, president and CEO of Pulte Homes, says that it is a necessity for his company at a time of rising land costs and an increase in the permit process from 12-24 months four or five years ago to 24-36 months today. Pulte now controls 362,000 lots, a supply that will last for years, more than any other home builder. In a drive to eke out more profits by becoming more efficient, Dugas has reduced the number of Pulte floor plans from more than 2,200 at the start of last year to 1,200 this year, and he hopes to get them down to 500-600. With a presence in 45 metro areas and 27 states, and $11.7 billion in revenue in 2004, Pulte has bought such firms as Del Webb and DiVosta, a Florida builder that has standardized building processes so that it can complete homes faster than the industry average. About 33% of Pulte’s business is in the active adult area, and the company will open 22 Del Webb communities in the next 18 months, about half in the Sun Belt and the rest in such states as Colorado, Ohio, Michigan and Delaware. The nation’s 10 largest home builders accounted for a 21.5% share of the 1.2 million new homes delivered last year, according to NAHB, up from a 9.4% in 1994. (www.usatoday.com)
USA Today (6/27/05); Sue Kirchhoff

[Return to top]

National Home Builders Consolidate Market Share

In locations such as Orlando, Fla., where industry consolidation is giving large production builders a growing share of the housing market, smaller builders are concentrating on niche markets, such as in-fill development and top-end custom homes, according to Gopal Ahluwalia, NAHB’s vice president for research. Smaller builders are also focusing on such areas as remodeling and even light commercial construction, he said. However, Jim Lewis, president of Charles Wayne Consulting, a real estate research company based in Maitland, Fla., says that the large companies’ push into the luxury market has hurt smaller builders. “We have production builders doing million-dollar homes today,” Lewis said. “That’s pushing some custom builders into the stratosphere, and that’s a very thin market.” Despite the consolidation, the top builder last year in the state’s Orange, Seminole and Osceola counties was privately held Maronda Homes, which sold 1,119 homes, or 9.2% of the market, compared to a 7.1% share for D.R. Horton, the nation’s largest builder. In Fort Lauderdale, the top five builders — D.R. Horton, Pulte Homes, Lennar Corp., Centex Corp. and KB Home — controlled 55.7% of the market in Fort Lauderdale in 2003, up from 16.7% in 1992. In Miami, their share was 46.3% two years ago. A recent report by NAHB shows that the top builders have banked several years’ worth of land inventory. Toll Brothers was estimated to have a 9.1-year supply, Pulte Homes 8.9 years and Centex Homes 7.8 years. (www.orlandosentinel.com)
Orlando Sentinel (6/27/05); Jack Snyder

[Return to top]