Sunday, February 06, 2005

Hurricanes take some wind out of housing boom

By Noelle C. Haner
Orlando Business Journal

ORLANDO -- As the vice president of development for Avatar Properties Inc., Tony Iorio has a lot to be proud of.

Avatar posted a record 1,921 new home sales in its three Orlando-area communities last year -- an 18 percent increase over sales in 2003. The growth came despite losing 44 sales days to the three hurricanes that blew through the region in 2004, along with the cleanup and building material and construction labor shortages that followed.

"We definitely had some setbacks," explains Iorio. "Homes under construction were absolutely delayed, and the delivery of those homes was delayed anywhere from one month to three months. Land development was impacted because water was everywhere. The roads were saturated."

The story is much the same throughout the Orlando market, begging the question: What would Orlando's 2004 housing market have been like if not for hurricanes Charley, Frances and Jeanne?

Iorio believes those 44 lost days made a difference. "Could it have been a better year? Yes. Every day you are open, there is a potential for sales, but if you're closed because people are preparing for a storm or you are repairing homes from a storm, that potential disappears," he says.
Unabated growth

To be sure, 2004 was a good year for Orlando's housing market.

According to analysts with Metro-study, last year's new homes starts, closings and inventory continued a 2 1?2-year, double-digit growth spurt in Orange, Lake, Osceola, Seminole and northeast Polk counties. Since the second quarter of 2002, the market's growth has averaged 20 percent every quarter.

For 2004, Orlando's construction starts ended with a record high of 27,673 new homes in Orlando, an increase of nearly 28 percent over 2003. The annual closings rate was up as well -- a little more than 21 percent, from 19,325 units in 2003 to 23,413.

As a result, the inventory of single-family homes -- those either under construction, vacant or used as model homes -- soared more than 37 percent over 2003 to 15,655, which is an eight-month supply for the Orlando area.

Existing home sales were off the charts as well.

The Orlando Regional Realtor Association reports 26,091 homes were sold in 2004, which is close to an 8 percent increase over 2003's figure of 24,251 sales.

Industry experts say the Orlando market's strength was supported by people who were trying to take advantage of the market before home prices and interest rates begin a predicted steady climb over the next year.

"Those sitting on the fence jumped off. They took advantage of low interest rates, and they decided to purchase before prices increased more because of building supply, impact fee and land costs," says Leslie Peters, Orlando division president of Morrison Homes, which sold 984 homes in its 11 Central Florida communities.
What is and what will be

Still, some housing industry experts believe last year's hurricane season took some steam out of the Orlando market -- and may continue to do so in 2005.

"If not for the hurricanes, the numbers would have been even more incredible," says Jack McCabe, chief executive of Deerfield Beach-based McCabe Research & Consulting LLC.

The reason: Shortages of building materials and labor throughout the state left many homes that should have been completed prior to the end of 2004 still under construction when Floridians rang in 2005.

According to Metrostudy, the greatest impact was felt on the number of closings in the market. Although closings were up on a year-to-year basis, they were down slightly from 6,030 homes in the third quarter of 2004 to 5,932 in the fourth quarter. The decrease in closings bumped up the number of homes under construction at the end of 2004 by 50 percent to 12,882 when compared with 2003, while the number of finished vacant homes in the market remained virtually unchanged.

"There is no doubt the ability to start and finish new homes was significantly impacted by the hurricanes," says Anthony Crocco, Metrostudy's director of the Orlando-Jacksonville region.

Morrison's Peters agrees. "The hurricanes really impacted our closings. We couldn't get roofs on the houses," she says.

As a result, a number of builders have gone into 2005 with more homes under contract and construction than they have had in the last four years, notes McCabe. For example, Miami-based Lennar Corp. carried some 675 homes over into 2005 because of Florida's hurricanes and other market issues.

This backlog is resulting in a home- building process that has been getting -- and will continue to get -- longer by the year, say Crocco.

"Our vendor pool and supply distribution chain were amped up and at capacity two years ago," he says. "The timeline for delivery started lengthening last year, but the crush of activity in the market now is lengthening it even more ... in some cases by as much as 50 percent."

This backlog coupled with the prediction of a slow increase in interest rates may have a cooling -- but not freezing -- effect on the Orlando housing market in 2005.

"This year is going to be a transitional one for real estate in Florida," says McCabe. "We are going to see some things that will slow it down. Even so, it will be a strong year."