Unsold Inventory Continues to Weigh on Florida Builders
Ted C. Jones, a senior staff vice president and chief economist for Stewart Title Guaranty Company, told builders attending the Southeast Building Conference in Orlando, Fla. earlier this month that they are still building at a faster pace than the market can absorb despite a sizable slowdown in production and that deterioration of the subprime mortgage market has made it even more difficult to work down unsold inventory.
“There is still overbuilding in Florida,” Jones said, and the industry is now paying the price for the real estate flipping that at the height of the housing boom became the nation’s latest get-rich-quick scheme and turned housing into the equivalent of a Yogi Berra baseball card.
Jones said that both jobs and interest rates continue to be a plus for Florida’s housing industry, but supply and demand are seriously out of kilter. In the condo market alone, there are 50,000 units that have never been occupied, he said.
“You guys have too much supply,” he said, “and working it out won’t happen in the next 12 months.”
To illustrate the imbalance in the state, Jones said that new job creation is running at an annual pace of roughly 117,000 compared to almost 145,000 housing permits, and that about 1.25 new jobs are needed to create the demand for one new dwelling unit.
“Most builders paid too much for dirt 24 months ago,” he said “and the only way they can keep in business is to keep on building.”
Jones compared the typical prospective home buyer in Florida to “a circling buzzard looking on the highway for fresh road kill. They’re going to wait for it to rot.” Buyers who have been waiting for prices to go down still haven’t seen the bottom of the market, he conceded, but as interest rates rise even marginally they may start to realize that they should have bought at the higher price.
Buyers are also starting to find financing more difficult to obtain as lenders turn to higher underwriting standards even for the prime borrower, he said. “People who could qualify for your home last year can’t this year,” he said.
Jones advised builders in the audience to start cutting their costs and learn to make a living at the current sales pace, which has almost returned to normal following the unsustainable rate of two years ago.
He also told builders to take a look at how they are spending their advertising dollars.
“Tell me about your killer Web site,” he said. The latest research shows that 79% of home buyers are commencing their search for a property on the Web and that is where 29% first saw the home they eventually bought. Newspapers are generating only 5% of sales but on average are accounting for 39% of Realtor® ad budgets.
“Your customer isn’t searching for a home in the conventional way, but you’re still selling your homes the old conventional way,” he said.
At a special “Leadership Advantage” program sponsored by Countrywide Home Loans on July 11, one day prior to the opening of SEBC, economist Mark Zandi of Moody’s Economy.com delivered even more disheartening news. “The worst of the decline is over, but you’re a long way from recovery,” he said.
Zandi said that the housing downturn is now two years old and the industry won’t return “to more normal activity” until 2010, according to a report in the SEBC Show Daily — the official publication of the conference.
Despite his gloomy predictions, Zandi said that certain events could boost housing.
“If the Fed lowered its interest rate, that would certainly help,” he said. “Loan modifications to help people stay in their homes would be a positive. The overall strength of the economy — not withstanding the problem in housing and autos — is certainly something to be thankful for.”