Southwest Florida Builders Take a Breather
Evidence of a slowing housing market in Southwest Florida continued Monday as the second-quarter earnings expectations of WCI were lowered and The Ronto Group said it was delaying two planned condominium communities in Bonita Springs due to declining demand.
The Naples Daily News reports that combined building orders for single-family and tower residences are down 50 percent at WCI for the first two months of the second quarter compared to the same time last year. Most of the decline was the result of a much lower demand in the Florida housing market.
Company officials have reduced by 20 percent the estimate for the number of new construction orders and said earnings would come in below the low end of their May 9 guidance of 75-85 cents. Perhaps most significantly, the company announced that instead of the 11-13 tower residences planned for release this year, WCI now plans to release only 3-5.
WCI isn’t the only company dealing with the Southwest Florida real estate cooldown by delaying the introduction of new homes and condominiums. The Ronto Group said Monday it is delaying its two communities planned for East Bonita Beach Road from early 2007 to late in the year.
Robin Driskill, the company’s director of sales and marketing, said the high inventory of housing stock in Southwest Florida prompted the delay.
“It wasn’t so much we didn’t want to move forward with (the communities); it is that there is so much investor product diluting what’s available,” Driskill said.
Across the country, housing inventory is rising rapidly, according to a new study. The number of existing homes listed online for sale in the largest 100 metropolitan areas in the country reached 2.3 million in May, 1 million more than the year before, according to Corzen Real Estate Indicators.
The trend is similar throughout Southwest Florida, where both Lee and Collier counties have more than a year’s supply of homes on the market.
“It does affect our bottom line. You have something out there that you want to put to work for you, but you are also not dumping money into the ground. We have to do that or we dilute the value of our product, and everyone needs to look at it like that. It is just not wise,” said Driskill, who added that this is a smart time for builders to take a break.
Kitty Green, Regional V.P. for the Bonita Bay Group, said that how much a builder or a residential community is impacted by the market depends on a variety of factors. She said everyone is feeling some effect from housing market conditions that have gone from astronomical increases in value in recent years to tepidness in 2006.
“Our Sandoval community in Cape Coral is a primary buyer community, but they have to be able to sell their existing home to buy the next one, and with all the resales on the market, many are having trouble selling their homes,” she said.
One worrisome sign is that inquiries have dropped as well as sales.
“The decline in both is worrisome for different reasons. Traffic is prospective buyers and is essential for future sales,” Green said.
Most builders don’t do much advance building these days, and the softening is giving many a chance to catch up on their backlog. What many are likely to do is slow down the launch of new communities and products until the market stabilizes. Such a slowdown in new homes and condo construction is necessary to reduce building inventory levels and prevent median home prices from dropping even more.
“If people put things on hold for a little bit, it will help get the market into an upswing a little sooner,” said Mike Timmerman, Managing Director of Hanley Wood Market Intelligence. “If the inventory starts shrinking, it will motivate buyers to buy and encourage sellers not to offer price reductions.”
The cutback in new homes was inevitable, given the speculative investment in the market during the course of the last year, said Mike Reitmann, Executive V.P. of the Lee Building Industry Association.
“Don’t know to what extent each one will do that, but each one is going to be evaluating the situation and doing what is prudent,” Reitmann said.
Construction costs, property insurance premiums and labor costs have risen, Florida home loans are becoming more expensive and builders’ ability to pass those costs to consumers has gone down. That’s the bottom line in this part of Florida, and it’s going to have a negative impact on earnings. The only hope is for the market to normalize before too long.
