Despite rising costs for land, building materials and labour, the latest US government figures show building starts and permits ramping up sharply indicating builders’ optimism about the future. With resale inventory having been dramatically absorbed over the last few months, consumers haven’t been able to find what they want and given the choice, most people are now steering toward new build construction as consumer confidence returns to pre-recession levels and household balance sheets are on the mend.
The new home inventory in the Naples-Fort Myers market dropped to only a 1.1 month’s supply in the fourth quarter of last year compared to a normal supply of between two and three months of finished vacant homes- meaning that almost every home under construction has been claimed .Likewise, the inventory of finished, developed residential lots has reached its lowest number in years. In the fourth quarter 2013, there were 11,227 lots less than 25% of the supply available in early 2009.
Building permits nationally are running at the highest levels they’ve been in the last five years with Southwest Florida outstripping the nation for single family homes.Some 634,000 single-family homes were permitted in November, a 10.5 percent increase from November 2012, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Lee County reported permitting 66 single-family homes and duplexes for the month, up 50 percent from the year before.
Meanwhile, the NAHB/Wells Fargo Housing Market Index (HMI), which measures builder sentiment in the single-family housing market, has been above the 50 mark for the past eight months. Any reading above 50 means that more builders view sales conditions as good than poor. Even though builders are taking out permits at a breakneck pace, they may have trouble keeping up with relentless demand over the coming two years, said Brad Hunter, chief economist of research group MetroStudy. “All of the people living in their parents’ basement will be getting their own places,” he predicts. He expects new construction to rise by 20 percent over the period in Southwest Florida, but added that it ought to be higher to meet demand.“The constraint is finding enough plots in good locations and enough skilled workers to build them,” he said. Of course, low inventory levels have allowed builders to raise prices by 11 percent, to $270,900 in November from the same month a year ago, according to the National Association of Home Builders.
Stronger job growth and a strengthening economy in 2014 should lead to a rise in household formations, which will be important to supplement housing demand suggesting a building boom. Lawrence Yun, chief economist for the National Association of Realtors noted there still is pent-up demand for all kinds of housing, which continues to push up rents and home prices. In Southwest Florida, rapid population growth has put extra pressure on the current supply of new homes with Lee County’s population, which swelled by a third to 586,925 from 2000 to 2010, expected to grow an additional 0.2 percent by 2014.
So consumers are back, pent-up demand is emerging, there is a growing need for new construction, distressed sales are diminishing and builders eager to construct again- there certainly seems a strong case these days to invest in developed Florida land plots.