Fast-growing Florida housing inventory

Fast-growing Florida housing inventory hasn't yet derailed homebuilders, says housing economist Ali Wolf 

"The interesting caveat is that most [Florida] builders think this will impact sales but haven’t seen a dramatic downshift yet," says Zonda chief economist Ali Wolf. 

 

Lance Lambert

Zonda chief economist Ali Wolf said that despite spiking levels of active housing inventory for sale in Florida, single-family builders in Florida are still doing alright. 

“The rise in inventory in Florida has definitely caused rumblings in the new home industry. We’ve had builders reach out to compare notes with what other builders are saying. The interesting caveat is that most builders think this will impact sales but haven’t seen a dramatic downshift yet,” Wolf told ResiClub. 

D.R. Horton CEO Paul Romanowski echoed a similar message when asked about Florida during the homebuilder’s last earnings call: "Florida still feels good to us. There certainly has been a lot of news tied to the rise in insurance rates and for most of where we sell our homes are off the coast and building new construction allows for some stability in those insurance rates. So haven't seen a significant increase for the homes in the communities where we sell as you may see reported along the coastal and high wind zones. Still seeing good migration and good job growth throughout the Florida market. So we feel pretty good about the Florida market and especially about our positioning at the more affordable price points across the Florida Peninsula.” 

Part of the reason Florida single-family builders have fared better, Wolf tells ResiClub, is because it's Florida existing homes and condos—rather than new construction—that are feeling the biggest impact from increased home insurance rates, property damage in SWFL from Hurricane Ian in September 2022, and changes to the state’s condo market. 

“If someone is looking to buy in Southeast [Florida] or SWFL, they will find that new homes come with a much lower home insurance bill than buying existing ones,” Wolf tells ResiClub. “In addition, some of the increase in supply comes back to the new laws related to existing condo structures and the fear of getting hit with a large bill to upgrade the building.” 

ResiClub PRO members can use this link to access the searchable chart below showing +800 U.S. markets 

Indeed, some of the ongoing weakening in Florida's existing/resale housing market can be attributed to Florida passing a structural safety law following the collapse of a Surfside, FL condo building in June 2021, which resulted in 98 deaths. 

According to reporting published last week by the Wall Street Journal, many Florida condos are experiencing special assessments exceeding $100,000: 

Condo inventory for sale in South Florida has more than doubled since the first quarter of last year, to more than 18,000 units. While the sharp rise in Florida home insurance costs is driving some to sell, most of the units on the market are in buildings 30 years or older. Under the new law, buildings must pass milestone structural inspections no later than 30 years after they are built. 

In Miami, about 38% of the housing stock is condos, the highest of any major metropolitan area in the U.S., according to Zillow. Of those buildings, nearly three-quarters are at least 30 years old. For those that have large repairs looming, many owners are scrambling to sell before Jan. 1 when building reserves must be fully funded to be in compliance with the law. 

“I think this is just the beginning,” said Greg Main-Baillie, an executive managing director at real-estate firm Colliers, who oversees 40 condo renovation projects across the state. 

Owners are struggling to find all-cash buyers because mortgage lenders are increasingly unwilling to take on the risk associated with these units. “It’s not the buyers that aren’t qualifying,” said Craig Studnicky, chief executive at ISG World. “It’s the buildings that aren’t qualifying.” 

State law previously allowed condos to waive reserve funding year after year, leading many buildings, including the nearly 50-year-old Cricket Club, to keep next to nothing in their coffers. Now, about 40 units in the building of 220 are listed for sale but are seeing little interest. 

“These units are practically being given away,” said Sari Papir, a retired real-estate agent who has lived in the Cricket Club with her partner Shaul Szlaifer since 2018. 

“Even if we found a buyer, what could we buy with the pennies we’d receive for our unit?” Some are worried developers may already be purchasing condos in the building for a potential takeover, where a developer tries to gain control of a building to knock it down and build a newer, more luxurious one. These condo terminations are happening up and down the state’s coastline. While the rules can vary by building, if enough people vote to sell their units, the others have to follow along.

 
-Wall Street Journal on May 13, 2024 

Will softening in Florida’s resale market, particularly in the condo market along the Southeast and Southwest coastlines, lead to weakening in Florida’s new construction market? 

ResiClub's baseline view is that new construction in Florida's condo market is more vulnerable than the single-family new construction market. Furthermore, Florida markets that have surpassed 2019 inventory levels by a significant margin are more susceptible than those that remain well below pre-pandemic inventory levels.

Post a Comment