Florida: Has the tide turned in the Sunshine State?
Housing economists, reading the tea leaves of recent building permits and home sales, are not yet ready to say, “It’s over.” But certain states are definitely showing a pick-up in business at both the builder and LBM supplier level. They say one of these states, surprisingly, is Florida.
Florida paid dearly for the housing units it reaped during the boom years. Florida is one of the four sand states (along with Arizona, California and Nevada) that accounted for 19 of the top 20 metro foreclosure rates in fiscal 2010, according to RealtyTrac, an online marketplace of foreclosed properties. Many of these are tied up in litigation in a case currently before the Florida Supreme Court, and banks are more reluctant now to initiate foreclosures.
“The numbers are declining significantly,” said Lesley Deutch, a VP at John Burns Real Estate Consulting. Her firm surveys builders around the country on a monthly basis about their unsold finished homes. “In the better markets, they’ve gone through the [backlog] and they’re building new homes.”
Builders are buying lots and land in order to position themselves for future growth, Deutch said. And the price of finished lots in Florida is rising. Demand from homeowners is also picking up, and not just for moderately priced homes. The Naples market had a “fantastic spring selling season” that also included active adult communities and luxury golf course projects, according to Deutch.
And if you find it hard to believe that prospective home buyers were camping out the night before a community’s grand opening, Deutch saw it with her own eyes in Naples, Fla. “They wanted to secure the best lot locations,” she explained. Also, the regional builder, GL Homes, has a good reputation in south Florida. Lastly, “[Buyers] realize that prices aren’t declining anymore, so it’s time to jump off the fence,” Deutch added.
Statistics from the Florida Realtors Association tell the same story. Pending sales increased 31% for single-family homes and 22.5% for townhouse-condo properties in June 2012 compared with June 2011, according to the trade group. Sales that closed on single-family homes rose 5.3% in the same time period.
The previous month was better. Pending sales in May increased 43.1% for single-family homes and 33.4 % for townhouse-condo properties. More importantly, the year-to-date figures showed a 19.3% rise in pending sales of single-family houses for 2012 and a 2.3% rise in closed sales.
To a realtor, there’s a big difference between the words “pending” and “closed.” But to a building materials seller, the most important thing is that houses are being framed in new developments and doors and windows, and cabinets are being purchased. Most Florida pro dealers interviewed — although not all — felt optimistic about the future, given their recent sales volumes.
Al Bavry, owner of Kimal Lumber in Nokomis, Fla., told Home Channel News his three-unit LBM chain is running 34% ahead of last year’s sales and 17% ahead of budget. His customers, a mix of high-end remodelers and custom builders on Florida’s West Coast, have become busy this year.
“In Sarasota, [buyers are] gobbling up these 40-, 50- and 60-year-old homes and putting a lot of money into them,” Bavry said. North of Sarasota, a 2,000-acre development, called Lakewood Ranch, is under construction, with a commercial mall and homes in the $600,000 to $700,000 price range.
“A high percentage of these [mortgages] are cash deals,” Bavry observed. “Very little banks are involved.”
Some of these deals are offshore investors or wealthy foreigners who would like a Florida getaway in Orlando or Miami. Others are retirees who cashed out their previous homes. Whoever they are, when they move into existing homes, they like to remodel. These are the customers Bavry targeted three years ago when the new-homes market went cold.
“I decided not to reduce my sales staff. Instead we developed new accounts and targeted the niche (custom builder) and high-end remodeler,” he said.
Kimal doesn’t serve many production builders, but there’s plenty of national chains in Florida — ProBuild, 84 Lumber and Builders FirstSource, to name a few — in position to partner with the big boys.
“D.R. Horton will go into an [unfinished] subdivision that stopped cold and buy 10 or 15 lots,” observed one pro dealer. “The next thing you now, they have roofs going up.”
Statistics from the U.S. Commerce Department show a definite uptick. In May 2012, single-unit housing permits in Florida were up 27.3%. Year-to-date, the number is 28.4%.
But as everyone knows, this recovery is a bumpy ride, and the train could derail for any number of reasons. Deutch, the John Burns analyst, worries about a prolonged period of high unemployment rates or job losses in Florida. “Monitor the Florida economy carefully,” she warned investors.
Don Magruder, CEO of Ro-Mac Lumber & Supply in Leesburg, Fla., is closely watching the outcome of the November elections. “People are still spooked” about the economy, Magruder said. Although he also deals with all-cash customers, bad appraisals are still a problem. “Only the stripped-down homes get appraised properly,” he said. Upgrades such as granite countertops or oak flooring don’t seem to add much value.
But Ro-Mac Lumber, which operates four locations in central Florida, has seen some improvements this spring. The foreclosed homes remaining on the market are a “disaster,” Magruder said, and overall, housing inventory is low. Residential building has picked up, but this pro dealer is more cautious than optimistic.
“We’ve been through two or three springs where it looked like things were going to improve and then there was a pull-back,” Magruder recalled. In fact, he observed, “In the last four weeks, it’s cooled off for us.”