Naples Home Builder Shares Analysis of Local Market, Predictions For ‘07

As a home builder serving the Naples housing market for over 20 years, Stuart Kaye has a unique perspective on his industry and community.

As one-time President of the Collier Building Industry Association and the Florida Home Builders Association, and founder of Kaye Homes, he has an outlook that goes far beyond his own company.

With Florida mortgage costs still low, and market dynamics shifting in favor of buyers, here’s what he has to say about the turbulent real estate market in Naples and Collier County in 2007, as told to the Naples Sun-Times:

OVERVIEW

Five years before 2006, the average annual increase in Collier County home prices was over 30 percent, placing Collier among the top three highest-appreciating markets in the country. For many people, especially those who got off in time, this was a great ride.

But it was clearly an unsustainable rate of increase. The demand side of the equation slowed down once amazing short-term profits were no longer available. The natural demand that rests on long-term growth patterns had been inflated by the speculative demand of investors.

It seemed like one couldn’t go wrong. New home builders entered the local market because it seemed that they couldn’t go wrong, either. Finally, years of price inflation, coupled with economic uncertainties, led buyers to wake up and back off.

NOT A RUNAWAY

In spite of what people think, there had not been runaway increases in home building here. Rather, during the last 10 years, building permits ranged between 5,820 permits (2003) and 8,158 permits (2001), so there has been consistency in supply. Uncertainty has checked demand, but all the things that are attractive about Naples and Southwest Florida are still in place.

This is a great environment and people want to live here. Even in 2006, Collier County was still a top employment growth center on a percentage basis. Demand will pick up when people feel the Southwest Florida housing market has regained stability. The days of people lining up outside of builders’ or realtors’ offices are gone.

HOUSES VS. CONDOS

Some portions of the Naples housing market are doing better than others. Throughout the state, single-family housing is doing better than most of the Florida condo market because there was more overbuilding in the condo sector and because condo market demand rests, in large part, on people seeking second homes. Second homes are a luxury that people are less concerned about in times of uncertainty.

Also, in this decade of record low Florida home mortgage rates, the run-up in condo prices exceeded that of single family homes, so the correction will naturally take longer to work through. In the single-family home market, there are always people looking for entry level homes, and there are always people at the upper end of the spectrum who will be ready to buy because they are less affected by economic factors.

IMPACT FEES

It is no secret that land is expensive and comprises a higher percentage of the total home cost than in the past. Add a $13,000 impact fee increase this past year, and, at $30,000 (whether a starter home or a mansion), we now have the highest impact fees in the state.

Material and labor costs have risen as well. However, there is now some softening of land prices, suggesting better times for both builders and buyers. In spite of the many cost increases to builders, buyers can find new homes (compliant with the latest building codes and including energy saving features) for what a comparable new home would have cost 2-3 years ago.

Politically, it is easier to increase impact fees that indirectly affect people who are not yet living and voting here than it is to increase ad valorum property taxes for those already here. Collier County has been able to keep property tax rates comparatively low while raising impact fees.

Because the impact fee for a $100,000 home is approximately the same as for a $1,000,000 home, the fees hamper attempts to offer affordable housing. If we build 7,000 new homes in Collier County, the burden of financing local government is unfairly placed on new home owners (to whom impact fees are passed along) rather than distributed more equitably among 20-30 times as many residential property owners.

SUPPLY & DEMAND

Oversupply in Collier County will continue for a while, though it is not nearly as bad as in Lee County. The majority of sellers who have active listings on the multi-list service have not yet accepted the fact that they will not make a 20-30 percent annual profit. Once they do, they will either take these homes off the market or lower their prices.

Over time, perhaps by middle or late 2007, supply and demand will come into a healthier balance and the number of homes listed for sale will decrease. This process is likely to be longer in Collier County than elsewhere, for the simple fact that many sellers here do not have to sell - selling is a desire or a preference, but not a need.

DEAD DEALS

In the end, buyers absolutely have to do their homework very carefully. They need to perform due diligence with respect to the people with whom they do business. It’s their responsibility to ensure they can make the Florida mortgage payments on time, and that they’re getting the best deal from their home builder of choice. Proceed with cautious optimism as you begin your home buying quest this new year.