by staff
Bad news: the housing market is lousy.
Good news: it’s not going to get worse.
That’s the theme that industry experts — both in North Florida and across America — repeat in every forum and survey.
And the bottom line may be pretty good as far as news is concerned: 2007 might turn out to be a reasonably good year for the real estate and construction industries.
Do not, however, expect a return to national, double-digit home-price growth. Those days may be over for a while, according to the National Association of Home Builder’s chief economist, David Seiders.
Instead, the recovery will be marked by fewer houses sitting on the market. “Inventories will drop,” says Seiders, “and prices will stay flat for a couple of years.”
He points out that housing prices don’t usually overcorrect after a long runup. Instead, “They generally decelerate and then grind along as income grows until they come into balance.”
In the North Florida area, a panel of experts at this month’s Outlook Conference cautiously predicted a rise in the market in 2007.
Mark Vitner, Wachovia’s chief economist, pointed to a strong national economy as a major reason for hope.
“The market is about halfway through a correction,” Vitner told the 200 conference attendees at the Southpoint Marriott. “Office properties have leveled off. The unemployment rate remains extremely low. Jacksonville is much more affordable relative to other major markets such as Orlando and Miami.”
Prudential Network Realty CEO Linda Sherrer said the population increase makes the market viable. In Jacksonville, for instance, 313 people move in each day.
The building boom of 2005, which resulted in record new home construction and price gains, has been followed by a sharp drop in building and prices this year, with the Census Bureau reporting a record glut of completed new homes available for sale on the market.
Jerry Howard, CEO of the National Association of Home Builders, sounds a similar note. “The market,” he says, “is at the bottom now.”
But, he added, a turnaround should begin in the first quarter of 2007.
Favorable factors contributing to better times will be low (and declining) interest rates, solid wage and job growth and low inflation. Long term demographic trends also spell housing market growth.
“2005 was the oddity, not 2006,” said Sherrer, adding that it’s a matter of doing a better sales job if agents want to move houses.
“Buyers are reluctant, they want to hold out,” said Sherrer. “Sellers are not convinced and they need to be aggressive.”
Pricing is the key, she said, and cited her company’s surveys that show 43 percent of buyers are holding out for the lowest possible price. In addition, her surveys show that almost 1 in 5 buyers expect some sort of perk at closing.
“Survival of the most prepared will win,” said Sherrer. And Vitner added: “Give people a reason to buy and they will.”
Maxine McBride, who runs Clockwork Marketing, lauded the efforts of the Northeast Florida Builders Association in its “time to buy” campaign and said it was important to make sure that message goes to the sales team.
McBride said buyers understand there is a difference between local and national statistics and they understand the market is changing, but they are confused about how long the downturn will last.
“The consumer wants more discussion and more statistics,” said McBride. “People used to go to a specific Web site, but now they Google it. Pay the money so your site comes up on those generic search engines.”
She said it was time to get back to basics: use focus groups, develop a simple marketing plan, use effective advertising, assure consistent public relations and provide training and education for sales people.
Pending home sales are hovering in a narrow range, another indication that a stabilization is occurring in the housing sector.
David Lereah, chief economist for the National Association of Realtors, said a fairly steady pace of home sales can be expected for the next two months.
“It’s important to focus on where the housing market is now. It appears to be stabilizing, and comparisons with an unsustainable boom mask the fact that home sales remain historically high. They’ll stay that way through 2007,” he said. “In addition, a temporary correction in prices distracts from the fact that it is primarily the number of home sales that affects the economy, and the number for this year will be the third highest on record.”
The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed, but the sale usually is finalized within one or two months of signing.
In the commercial field, the Commercial Leading Indicator for Brokerage Activity, a leading indicator for the commercial market, has increased for six consecutive quarters showing that continued growth can be expected in commercial real estate sectors.
Lereah said the index is at the highest level in the series of the indicator, which goes back to 1990.
“Although we have a strong uptrend in the commercial sectors, the rise in the index over the last two quarters shows a lower rate of expansion in comparison with late 2005 and early 2006,” Lereah said. “This means that commercial sectors will continue to grow, but at a more modest pace.”
Growth in the index means net absorption of space in the industrial and office sectors will continue to improve over the next six to nine months, with rising completions of overall retail, office, warehouse and lodging structures.
Even when bad news is big, it’s tempered by the hope for tomorrow.
The building giant Toll Brothers, which has a presence in North Florida through its partnership with Dostie Builders, reported a sharp drop in fiscal fourth quarter earnings and forecast a big drop in profits for the coming year. But, despite that bad news, chairman and CEO Robert Toll said that the market for new homes may finally be leveling off after more than a year’s worth of declines.
“Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above,” said Toll in a statement accompanying the earnings report.
Inventory — the glut of it — may be the bugaboo, said consultant Charlie Clark, one of the Outlook Conference panelists.
“There’s too much product on the market and it’s because of investors,” said Clark. “They walk away (from their deposit) and now the builders have inventory.”
Condo conversions have had a major impact. Clark estimates that there have been 11,000 conversions from apartments and the speculative inventory showed a quick rise.
“But prices will correct,” said Clark. Florida is relatively inexpensive to relocate to.”
He predicted that 100 million people will be added to the United States population in the next 40 years and “Florida’s going to get a bunch of them. Our real estate looks cheap.”