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Florida Builders Must Adjust to New Market Realities
 A great line from my favorite sci-fi thriller “Aliens” is spoken by Newt, the film’s little-girl-in-distress: “My mommy told me there aren’t any monsters. No real ones.” Sigourney Weaver replies: “Most of the time it’s true.” There have been some builders and speculators who were told (not by me), “Florida home prices never go down.” Most of the time, it was true.
The change in the housing market over the last two years was expected, but not to this degree, at least by most builders. It is time to confront the new reality and adapt.
We have seen new home prices fall, and now we are starting to see resale prices decline, and now even some land sellers are starting to settle for lower prices. Lower land prices will be an important part of the foundation of the next up-cycle. Buyers are already absorbing the current inventory, and the recovery of demand will accelerate this healing. People are still being born, getting married, getting new jobs, getting divorced, having babies and retiring. These life changes mean that someone’s housing needs have changed. Demand is still out there. It is being kept pent up by market anxiety, tax impacts, mortgage availability and inability to sell another home, but sooner or later many of these barriers will become less onerous, and people who need (as opposed to want) a new home will go ahead and buy.
A Life and Death Struggle
The problem is, although builder inventories are being worked off, more inventory is coming. Resale inventories will once again swell, this time with listings of foreclosed homes. Resets of adjustable rate mortgages will surge in the spring (mostly subprime loans), and again in the summer (subprime, prime and especially jumbo loans), and many people will not be able to sustain the increase in their monthly payment. More foreclosures are looming. It is now clear that 2008 will be another extremely challenging year for builders. Auctions have started to happen, and some homes have sold in bulk for less that 60 cents on the dollar — less than their peak price. There will be more auctions next year. This is part of the new reality.
Adapting to the new reality does not mean you should fire all your key workers and stop advertising. Marketing (advertising, market research, product redesign) has to be given even more importance than before. The winners in the battle to come will be the builders who move quickly to meet the needs of today’s home buyer, and those needs are very different from the insouciant ideals of the 2005-vintage investors.
For builders, this is a struggle of life and death. There will some builders who will be bankrupt because they made poor decisions and did not react and recover quickly enough from the results.
At the End of the Day, Long-Term Housing Demand Is Strong
The important thing is to remember at the end of the day is that long-term prospects for housing demand are strong. Demographic trends suggest that demand for new homes in Florida, driven by the boomers, will be stronger than ever in a few years. This will stem from a strong resurgence of second-home demand, and later, retiree demand.
There is a great deal of pent-up demand.
Most of you undoubtedly read or heard about the book about the mice and the cheese. For years, the cheese never moved, but now it has, and looking for it in the same places as before will be a waste of time. It is a time to study the market and adapt. The builders with the best information will eat the others’ cheese.
The encouraging news in Metrostudy’s latest study (third quarter, consisting of a 100% count of all subdivision activity in Collier) is that new home starts are down 45.4% versus a year earlier, a necessary reduction. New home inventories have not yet fallen, however, because home completions are still running more than 450 to 500 per quarter. The pipeline of homes under construction has dwindled, suggesting that completions will soon fall low enough to allow net absorption to pull ahead, drawing down the list of empty homes. The foreclosure surge we anticipate in the next 12 months, however, will add to supply. Resale prices are finally starting to fall, which is good news for transaction-starved Realtors®, but bad news for builders.
Brad Hunter runs Metrostudy’s research in Southeast and Southwest Florida. Metrostudy is the leading provider of primary market information to the housing industry and related industries nationwide. The company is recognized for its consulting expertise on development, strategy, marketing and economic issues and is a key source of research studies evaluating the marketability of residential projects. Brad Hunter can be reached at 562-835-9235.
This article was previously published by the Florida Home Builders Association and is reprinted with permission.
Webcast of NAHB Fall Construction Forecast Available Till Feb. 5
The webcast of the NAHB Fall Construction Forecast Conference held in Washington, D.C. on Oct. 24. is available for purchase through Feb. 5.
The conference webcast includes panels of nationally recognized experts discussing economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys.
Purchasers will receive unlimited access to the webcast archive though Feb. 5, as well as electronic copies of the conference handouts and presentation material. Purchasers can watch at their own pace, rewind, fast forward and review important sections.
To Purchase the Webcast
To purchase the webcast, visit www.nahb.org/cfcwebcast.
For more information, contact Kate Carrigan at NAHB, or call her at 800-369-5242 x8244.
 Want to Know the Housing Forecast for the Top 100 Metros?
Find out in HousingEconomic.com’s 2008 to 2009 Metro Forecast (free preview).
Get the metro forecast with in-depth analysis, overviews and downloadable Excel tables.
To learn more, visit www.HousingEconomics.com.
 Free NAHB Kit Gives Builders Back-to-Basics Tips to Navigate the Slowdown
What was once expected to be a relatively mild housing slump following three years of record new home construction and sales has given way to a significant downturn.
To help members navigate the uncharted waters of this slowdown, NAHB has compiled a comprehensive “Back to Basics” online toolkit — the best of the basics, the tried and true and the truly new. To access the toolkit, click here.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.
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