Future hazy for area's once-hot home sales. Check it out:
(Orlando Sentinel, The (FL) (KRT) Via Thomson Dialog NewsEdge) Oct. 1--Is the housing bubble bursting in Central Florida? Stan Smith doesn't think so.
In a recent report to local mortgage bankers, the University of Central Florida finance professor concluded that "prices are slowing, but there appears to be no bursting of the bubble."
Unfortunately, Smith added, "One of the biggest problems with a bubble is that we may not know it is bursting until it happens."
For builders, buyers and sellers -- and experts such as Smith -- the sure-sailing housing market of recent years is moving into uncharted territory.
The region's housing starts may have fallen during the third quarter for the first time in years. Builders who were stockpiling new-home orders a year ago are now running promotional campaigns to move excess inventory.
Existing-home sales, down for several straight months already, are threatening to take resale prices down with them after more than a dozen record-setting years in a row.
Still, Smith has concluded that the numbers he analyzed "suggest that, in general, Central Florida housing markets are currently experiencing the soft landing that many had hoped for."
But Anthony Crocco sees signs that the landing may not be so soft.
As the Central Florida director for Metrostudy, which tracks new-home construction nationwide, Crocco spends much of his time counting housing starts, or new construction, in subdivisions across the region.
Starts in the Orlando area were still up during the second quarter -- 3.2 percent higher than in the same period last year, according to Crocco's latest survey.
But the area's new-home inventory grew nearly 20 percent during the quarter -- and the fastest growth came in the "finished but vacant" category, up 136 percent to 6,787 homes. And in another clear sign of a slowdown, the total number of homes under construction during the quarter -- 16,133 -- was only 20 units more than a year earlier.
According to Crocco, the buildup of new-home inventory continued during the third quarter, though exact figures won't be tabulated for a few weeks.
"My guess is that we will see a pretty significant decline in [new-home] starts," he said, as builders work off backlogs of orders stretching back to last year.
The big question, he said, is "just how many quarters will it take" before builders can clear those unsold homes and begin to boost housing starts once again.
'Getting back to normal'
Orlando builder David Kohn figured at the start of this year that he would surpass the revenue record he set in 2005.
No longer.
Still, there are benefits to a pullback from the frenzied activity of recent years, said Kohn, president of ABD Development, a privately held custom builder. For one thing, the slowdown has relieved at least some of the pressure on construction materials and subcontractor labor, both in short supply, he said.
"The subs are now getting back on track, because they are less busy. It's getting back to normal," Kohn said. "The market was too crazy. I'm happy with this slowdown."
At the start of the year, Kohn had forecast that ABD would surpass its $125 million sales record for 2005. But that appears unlikely now, he said.
"We'll be close," he said. "We're still busy."
ABD, which had revenue of $80 million in 2004, is building in a number of developments, including Providence, an award-winning master-planned community in Polk County.
Sweetening deals
Busy or not, many builders are resorting to attention-grabbing offers to keep drawing enough prospective home buyers to their developments.
Bob Benjamin recently paid $315,000 for a new town home near Sanford that he loves -- three bedrooms, 21/2 baths and a two-car garage. But the real clincher, Benjamin said, was the builder's move-in deal: $1.
Nothing down, no closing costs, no fees other than the token $1.
Morrison Homes, which began the promotion Aug. 1, has had such a good response, company representatives say, that the deal has been extended through October and might be continued beyond that.
"The deal worked just like they said. There were no hidden strings," said Benjamin, a commercial pilot. An earnest-money deposit -- also known as a good-faith deposit -- and all but $1 of a $395 application fee are refunded at closing. Buyers must meet eligibility requirements, such as a credit score of 580 to 800, and obtain 100 percent financing through Morrison Financial Services.
"I'm paying a few hundred bucks more than when I was renting, but it's worth it," Benjamin said. "The product is really nice, and I own it."
Such promotions are squeezing builders' profit margins, to the benefit of home buyers, said Robert Curran, an industry analyst for Fitch Ratings in New York. From mortgage buy-downs to free plasma televisions, the costs add up, Curran said, and many of the large, publicly held builders have been trimming their earnings forecasts for this year and 2007.
For buyers with decent income -- such as the 36-year-old Benjamin, who tried house hunting last year, when prices were still soaring -- the downturn in the market has made it easier to become a homeowner.
"A year ago they wanted a ton of money out of pocket," Benjamin said. "This program helped me get in there."
Prices may have peaked
In predicting a soft landing for Central Florida's housing market, Smith, the UCF finance professor, examined locally generated sales data as well as the Housing Price Index from the Office of Federal Housing Enterprise Oversight.
That particular index -- favored by many economists because it is based on repeat sales of the same properties, all financed with conventional loans -- shows that home prices generally in Central Florida peaked during the second quarter of 2005.
They have trended down ever since -- but have remained in positive territory when compared with the same period a year earlier. And the rate of decline in the Orlando market has not been as severe as across much of the rest of the state and country, Smith noted.
For example, home prices nationwide appreciated an average of 1.2 percent in the second quarter and 10.1 percent during the 12 months that ended June 30. In Florida, prices were up 2.5 percent in the quarter and 21.3 percent for the year.
But in Metro Orlando, they were up 3.7 percent in the second quarter and 26.3 percent in the 12 months through June 30 -- the fifth-best annual appreciation rate in the nation.
It's true that, by August, the inventory of single-family homes for sale by Realtors in the Orlando area had ballooned to more than 10 months' worth -- the first time that has occurred since 1997.
But when Smith looked at the federal home-price index for 1997, he noticed that Orlando-area prices that year still rose more than 5 percent, despite the huge backlog of unsold properties.
If such history is any indicator, he said, "house prices may continue to increase, even with a relatively high inventory of homes."
Also on the plus side: Most forecasters don't expect a large increase in long-term interest rates within the next year or two -- mortgage rates slipped to their lowest levels since March last week -- and Central Florida's population and employment base are expected to continue growing.
Smith does caution that both the record inventory of existing homes and the promotional discounting of new homes bear watching because of the effect they could have on sales and prices. The closer that new homes with discounts are located to existing homes for sale, he said, the greater the chance that downward pressure on prices will spread.
"The situation may change," he said.
For seller, auction worked
The rising inventory of homes for sale already has many local sellers sweating, as weeks or months pass without a sale.
Dale Szarmack was worried at one point about selling his Oviedo home. But as the situation changed, he changed his situation.
With a record-high inventory competing for attention -- more than 21,000 single-family units as of August in the core Orlando market alone -- he feared that his four-bedroom, two-bath home would be lost in the sheer volume of listings.
One offer had already fallen through earlier this year, when the buyers were unable to close on the sale of their own home. And the number of days that the average home lingers on the market before selling has been steadily lengthening in Orlando.
So Szarmack took a page from the sales-boom era and staged an auction. Rather than re-list with a Realtor, he printed his own fliers on bright-yellow paper, put an ad in the paper and solicited bids starting at $249,500.
"It was awesome," Szarmack said of the results. During a recent two-day weekend, 45 people toured his home, and nine made offers. He said he sold the house for "just shy" of what he had been hoping to get all along, a price that was well above the initial bid required.
"I will do it again, if I ever sell another home," said Szarmack, who followed the steps outlined in the book How to Sell Your Home in 5 Days by Bill Effros.
Now, Szarmack said, "I have people calling me, offering to pay me to do this for them."
Jerry W. Jackson can be reached at [email protected] or 407-420-5721.
Copyright (c) 2006, The Orlando Sentinel, Fla.
Distributed by McClatchy-Tribune Business News.
For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
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