Home buyers positively buoyant
Home builders nationwide and in Southwest Florida are feeling more confident about their business than they have in the past seven years.
The latest National Association of Home Builders / Wells Fargo Housing Market Index suggests that single-family home construction will accelerate in the months ahead, a trend Southwest Florida builders are already seeing.
The index, released last week, climbed to 57 from a revised 51 in June, its third straight monthly advance and the highest level since January 2006.
"Builder confidence is there," agreed Alan Anderson, executive vice president of the Home Builders Association Manatee-Sarasota. "We're continuing to build and sell homes, especially in light of the local shortfall in available real estate listings."
The monthly index has jumped 13 points in the last two months, for the strongest gain since early 1992. By contrast, the index reached a nadir of 8 in January 2009.
"Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten," NAHB chief economist David Crowe said.
But builders and analysts warn that the positive momentum could be disrupted if interest rates spike, if Congress moves to eliminate the mortgage interest deduction or if federal support wanes for the housing finance system.
For now, though, home builders on Florida's West Coast are trying to meet the demand by constructing residences at a frantic pace.
Developers began construction on 970 new homes in the Sarasota-Manatee region in the second quarter, according to research firm Metrostudy. That was up 8 percent from the first quarter and a strong 75 percent from a year ago.
At the same time, national builders such as Lennar Homes, Pulte Homes, DR Horton and Taylor Morrison have invested tens of millions of dollars to acquire large tracts on which to develop new communities.
Regional builders such as Neal Communities and John Cannon Homes also are thriving as buyers, with recharged 401(k) plans and renewed confidence, are selling homes up North to plan retirements in the Sunshine State.
Lennar, which is building in 10 communities in Sarasota and Manatee counties, is scheduled to break ground this week on Bridgewater, a new 292-home neighborhood in Lakewood Ranch.
Matt Devereaux, Lennar's vice president of sales and marketing for Southwest Florida, expects to complete the community in three to five years.
"A lot of folks are buying new construction, because the resale inventory in the Sarasota area is way down," he said. "Interest rates have been very favorable for the past three to four years. Rates have taken a little jump, so they are taking advantage now of the still low rates and lower pricing on new homes."
Neal Communities had sold 459 homes as of mid-year, on pace to easily break its record of 600 sales last year. Its current sales pace already surpasses the annual totals for all years but 2012.
Director of sales David Hunihan points to the "double whammy" of steady household creation over the past seven years, coupled with Baby Boomers who put off buying and are now returning to the market.
His major worry is a labor shortage.
"One of the biggest hurdles going forward is getting the skilled labor to be able to meet the demand we are seeing," he said.
John Cannon, too, has had a strong first half of 2013, with average prices jumping more than $100,000. The company expects that to carry through to the rest of the year.
"Our pipeline is very busy," said company president John Cannon. "The demand is going to continue to increase."
Cannon's primary concern is that not enough land will be available on which to build his high-end homes.
The NAHB/Wells Fargo Index for July showed gains in all three of its components. Sales conditions rose to the highest level since early 2006, while sales expectations for the next six months gained seven points. Prospective buyer traffic, meanwhile, moved up five points, the best reading since late 2005.
The reading for the South region rose five points to 50, under the U.S. average but right at the level where builders view conditions as good rather than poor.
That figure came as inventory of existing homes for sale fell to a three-month supply in May in Sarasota, Manatee and Charlotte counties. That was off from a 3.4-month supply in April and from the 4.3-month supply in May 2012, according to researcher Trendgraphix.
On a national level, the inventory of previously occupied homes was down 10 percent in May from last year as sales rose to an annual rate of 5.18 million.
Growing demand, rising prices and fewer homes for sale have made builders more optimistic about their prospects, which has stepped up construction. In May, builders nationally applied for permits to build single-family homes at the fastest pace in five years.
Sales of new homes climbed in May to a seasonally adjusted annual rate of 476,000, the fastest pace in five years. While that is still below the 700,000 annual rate that is considered healthy by most economists, the pace is up 29 percent from a year ago.
"The housing market is what is really moving the needle in the nation's recovery," said Jack Albin, chief investment officer at BMO Private Bank. "Low mortgage rates and years of waning prices have helped the revitalization. However, the S&P/Case-Shiller index of home prices has been rising since April 2012, and investors now have to contend with a recent rebound in mortgage rates.
"Meanwhile, housing starts are poised to rise 18 percent this year, on pace with the surge in homebuilder confidence that has unfolded in the last three years." Albin said. "Time will tell what the Case-Shiller index will look like once it reflects this summer's higher mortgage rates, but for now it has risen nearly 5 percent in just two quarters."
Hunihan said builders like Neal Communities that survived the real estate downturn learned "good, hard lessons."
"They have focused on maintaining lean operations and managing growth," he said. "We're not anxious to repeat those problems."
Housing will always be a cyclical business, HBA executive Anderson said, but Southwest Florida will always have its quality of life to sell, too.
"When things went bad, we took one of the biggest hits and were one of the first in line to go down," he said. "And now we've started to recover earlier than others, because of what our community offers potential new residents."