Some builders find reason for optimism

Some builders find reason for optimism

By STEPHEN FRATER- Sarasota Herald-Tribune 
Home builder Pat Neal did about 25 percent less business last year. John Cannon's sales fell by a third.

But builders with low-cost inventory and high-end buyers seem to be weathering the housing storm better than many.

Neal says he plans to "aggressively pursue new parcels of land in 2008."

Cannon sees strength in his backlog of super-high-end homes that have long design and construction cycles. The houses that his John Cannon Homes is completing were all sold in the boom days of 2005 and 2006.

"We've got more backlog than the smaller guys who build smaller homes in six months," Cannon said. "Our goal now is to keep the pipeline moving."

But the picture is considerably bleaker in other parts of the housing industry.

This week, Kimball Hill Inc. warned in a federal filing that it might become the latest victim of the national housing malaise, saying it had "substantial doubts about whether we will be able to continue as a going concern." In Sarasota County, the company was developing property in the Palmer Oaks subdivision and, in Venice, at Ventura Village.

Last week, national player KB Home, selling homes at its Willowbrook development in Bradenton, reported losses in the fourth quarter that ballooned to more than $770 million.

On Thursday, WCI Communities -- the developer of Tidewater Preserve and Waterlefe in Manatee County and the Venetian Golf & River Club -- saw its shares spike about 23 percent to $3 after announcing late Wednesday that it had renegotiated loan terms with two banks, heading off speculation that the Bonita Springs-based company was quickly headed for bankruptcy.

Also on Thursday, the Commerce Department reported that construction was started on 1.353 million new homes and apartments last year, down 24.8 percent from 2006. It was the second biggest annual decline on record, exceeded only by a 26 percent plunge in 1980, a period when the Federal Reserve was pushing interest rates to post-World War II records in an effort to combat an entrenched inflation problem.

The numbers

Neal Communities sold 138 new homes in 2007, accounting for about $108 million in sales. That compared with $144 million worth of land and homes in 2006.

Cannon said that he sold $48 million worth of homes last year, down from $72 million in 2006. He said that his unit volume dropped from 35 in 2006 to 23 last year.

Cannon admits that his margins have shrunk to get the homes sold and even his well-heeled buyers "are not pulling the trigger as quickly."

"The buyers I work with are not immune to recent economic developments and news, but they're more resilient," Cannon said. "They have been saving and planning all their lives for their Florida dream retirement home and they'll build that home regardless."

Neal is bucking a national liquidation trend and continues to buy land and build homes in the region. His company has five new communities in Lakewood Ranch and 10 new models within several of its most successful communities that are set to open this year.

"I do not plan to slow down," Neal said, adding that his debt-free position -- something few other builders can boast of -- has provided financial stability for his Lakewood Ranch-based company.

Neal Communities' projects are self- and partner-financed. The company also has lines of credit of more than $30 million, Neal said.

Much of his land was bought before the dramatic increase in land prices during the recent housing boom. He has more than 1,200 home sites available in Neal Communities and 8,000 undeveloped lots.

National pain

Many economists believe that the current slump in housing will rival the dive in the late 1970s and early 1980s when housing construction fell for four straight years before beginning to recover after the severe 1981-82 recession.

For December, construction fell by a bigger-than-expected 14.2 percent.

The drop in construction in December was bigger than economists had been expecting and reflected weakness in all parts of the country.

Housing construction was down 3.3 percent in the South, but fell by 30.8 percent in the Midwest, 25.8 percent in the Northeast and 19.6 percent in the West.

"Builders have finally thrown in the towel," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "This is a precondition for recovery as it will eventually reduce the inventory overhang. But there is a long way to go."

For December, housing starts totaled 1.006 million units at an annual rate. In an ominous sign for the future, applications for building permits fell by 8.1 percent to an annual rate of 1.068 million units.

That marked the seventh consecutive monthly decline and reflected the fact that builders have been slashing production plans in an effort to deal with a glut of unsold homes.

A survey of builder sentiment by the National Association of Home Builders showed the second-lowest level on record in January at 19, up slightly from the record low of 18 set in December.

The index has been below 20 since October as builders struggle to deal with slumping demand, rising housing defaults and tighter lending standards.

Many economists believe the housing sector will remain weak through this year before starting to rebound in 2009.

Information from the Associated Press was used in this report.