Florida's NEW-HOME MARKET.

Busy (but not booming) and strong (but not carried away) is a good way to describe the home-building markets in this state. An awesome economy is pumping out the jobs and retirees are still flocking here. Apartments, single-family homes and condos will be going up at a steady pace well into 2000.

THE FLORIDA HOME-BUILDING INDUSTRY IS STILL GOING STRONG AFTER A SEVEN-YEAR EXPANSION, YET THERE ARE SIGNS THE BUILDING MAY BE TAPERING OFF. To the extent that a moderate slowdown occurs, it will be the result of a runup in interest rates, an increase in home prices and--at least in some markets--a scarcity of land The good news in this whole scenario is there won't be a bust, because the market hasn't overheated in recent years.

David Dabby, senior vice president of AREEA (Appraisal and Real Estate Economics Associates, Inc.), based in Miami, says, "Builders will peak this year, after a long stretch of high demand for new homes. He cites the one-point jump in interest rates over the last year as a precipitating factor in bringing about a slowdown. "It will knock out part of the market, at least for a while," he says.

Growth in housing markets is always fueled by job growth, and, in Florida, job growth has been brisk in recent years. Lynn Reaser, chief economist, Bank of America private bank division, in Jack sonville, says that Florida has had the second-fastest job growth in the nation, surpassed only by Nevada. Florida remains consistently in the top-five fastest growing states in the United States, she says.

And unemployment remains low--slightly less than 4 percent at the end of 1999. "As a result," says Reaser, "confidence is strong. We would expect that job growth will slow only moderately in 2000, averaging out to 3.2 percent, compared with 1.8 percent nationally. Incomes will generally grow faster than inflation and the population in the state will also grow at twice the national pace--2 percent, versus 1 percent in the country at large," she says.

Looking at Florida housing starts, Stanley Duobinis, director of forecasting for the NAHB (National Association of Home Builders) in Washington, D.C., says that he expects to see a 3.1 percent drop in single-family and multifamily housing starts (combined) in Florida in 2000, versus a 7.5 percent decline nationwide. "The trick here is to be the state with almost the smallest decline in 2000," he says. Florida, which has a housing industry that is among the 10 strongest in the nation, according to Duobinis, is expected to have the smallest decline in the Southeast, he says.

Florida's new-home market should avoid the boom-and-bust scenario of years past, predicts Reaser. In 1985 and 1986, Florida was building 200,000 housing units per year. That figure plunged to fewer than 100,000 in 1991, according to Reaser. "We have a much better balance today," she says.

In 1998, there were 96,000 single-family housing starts in Florida, versus an estimated 100,000 in 1999. In 2000, that number is expected to slip back to 96,000, according to Reaser. As for multifamily starts, in 1998 there were 49,500 (mainly rentals), versus an estimated 60,000 in 1999. In 2000, that number is expected to drop back to 55,000, says Reaser.

Higher mortgage rates and less credit available to builders partly account for the slowdown in the new-home market, says Reaser. In response, she says, families are compensating by buying less-expensive homes or opting for adjustable-rate mortgages. As for the availability of credit to builders, she says that in 1998, money was readily available to them--which resulted in a threat of overbuilding. But later, there was some tightening of credit, which brought some speculative building to a halt, Reaser adds.

At this point, Reaser says, less-capitalized builders will have more trouble securing financing. But even some of the small and medium-sized builders with good balance sheets still are able to get credit. There is no credit crunch in the industry, she notes, but neither is there the kind of easy credit that would spawn the excesses of the past. The current situation is dramatically different from that of the last 20 years, she says. "I think everyone has learned their lesson. I also believe that the lower inflation environment has helped lower the excesses," she says.

Big developers going full speed ahead

Although experts are predicting a downward trend in housing starts in the new year, one wouldn't know it from talking to some of the largest developers in the state. George Casey, president of Boca Raton-based Arvida, says, "At Weston [a city in southwestern Broward County, near Ft. Lauderdale], we're forecasting that we will build 1,400 homes, including town houses and single-family houses, versus 1,250 homes projected for all of 1999." The reason for the increase, says Casey, was that "Essentially, the demand is there. If we built 1,400 homes in 1999, we could have sold them." Housing units at Weston, which will have 15,000 units at build-out, go for anywhere from $89,000 to s1 million.

Casey says his company expects to build more than 2,000 housing units in the entire state of Florida in the year 2000, including the 1,400 at Weston. Although Weston has accounted for as much as 90 percent of the company's new units in the last few years, the company also has operations in Jacksonville, Panama City, Tampa, Orlando and Tallahassee. "In Jacksonville," says Casey, "we will have more communities coming online this year than in 1999."

Pulte Homes Corporation also expects to continue full speed ahead in Florida. Larry Comegys, president of the Florida Region of Pulte Homes Corporation, Tampa, says that his company, which is the largest home builder in the country, expects to build 4,000 homes in Florida in 2000--an increase of 10 percent to 15 percent over 1999. That includes single-family homes, town houses and condominiums. The reason that Pulte will be doing so much more than in 1999, Comegys says, is that "We have new units coming online in areas we didn't build in before." Pulte builds homes that sell for $70,000 to $1 million, says Comegys, but the company's core business is in the $100,000 to $175,000 range.

Consolidation

Century Builders Group, a Miami--Dade County builder, will build about 30 percent more homes than in 1999, says Sergio Pino, president of the company. "In 1999, we built about 1,400 homes, and we expect to build over 1,800 in the year 2000--mostly in Miami-Dade County," he says.

Century expects to build more homes in 2000 because the company is literally bigger than it was at the beginning of 1999. Century is one of a number of builders doing business in Florida that have grown by acquisition in recent years. Although Century started as a small, local operation a few years ago, it now does business in Orlando and Texas, says Pino. One of the company's latest acquisitions is the purchase of Weitzer Homes, a public company, done this past August. Today, Century is also a public company.

Pino says that in late November he was in the due diligence process in preparation to buy several other local builders. "I want to emulate Lennar [Corporation]," says Pino, referring to the Miami-based home builder that has become the fifth-largest in the United States, partially through acquisitions.

Consolidation is an ongoing trend in the industry today, says Dabby. In Palm Beach County, for example, Pulte Homes Corporation bought DiVosta Homes in 1998, he says.

Barry Rutenberg, president of the Florida Home Builders Association, says, "We won't see the disappearance of small builders. They will find niche markets, like projects [that] are too small for the majors."

In Miami--Dade, says Dabby, the small builder--especially the Hispanic builder--has an easier time than in other places. "This market is controlled by Hispanic builders," he says. "They have leaner operations. It is easier for them to compete."

But while smaller builders won't disappear, Rutenberg says, "We will also see the continued expansion of the larger builders, and larger builders acquiring each other." Plus, he says, the larger builders will go into secondary markets--Daytona from Orlando, for example.

Prices going up

No matter who is building homes, prices are destined to rise in 2000. "Without a doubt," says Casey, "prices will go up--probably 6 to 8 percent for almost all categories, mostly in South Florida." The reasons for the price hikes, he says, are the continued strong job growth, in-migration into South Florida and the decline in the amount of approved building land. It's a matter of increasing demand and decreasing supply, he says.

Boca Raton-based Bradley Hunter, director of consulting for American Metro/Study Corporation, a research company based in Houston, agrees. He says that prices are going up in 2000, especially in areas that are close to running out of land, like Southwest Broward County near Ft. Lauderdale, and Boca Raton in Palm Beach County. In these areas, says Hunter, "there will be price increases of about 8 percent to 10 percent" from 1999 levels.

Shortages in building materials and a tight labor market also contribute to price escalation, says Hunter. Workers in all building trades are in short supply, he says. Materials, especially drywall, roofing and insulation, can be hard to get, which makes them more expensive. According to Rutenberg, who is chairman of the building materials task force for the NAHB, a drywall shortage has been one of the biggest problems. As of the beginning of 1999, when drywall shortages were more acute, he says, only three companies sold 71 percent of the domestically produced drywall.

The escalation in the cost of building materials and high wages for workers in the building trades eat up profits. While home prices are going up, profits are not, says Hunter, so either the builders are eating some of the price increases or they are passing them on to consumers. In either case, profits are not rising. "A lot of times, builders won't build at all because they can't make enough profit," says Hunter.

Market profiles

ORLANDO-TAMPA

According to American Metro/Study, which tracks single-family housing starts all around Florida, Orlando was forecast as the leader in single-family housing starts for 1999, with 17,000-an 11.6 percent increase from 1998. Even with a projected decrease of 13.3 percent in 2000, which would peg single-family housing starts at 15,000, Orlando's housing market is expected to be very active.

A lot of what's driving the home-building industry in Orlando is Mickey Mouse, says Duobinis. Orlando is the largest home-building market in Florida. It has consistently had the strongest job growth of any area in Florida in recent years, due largely to service-sector jobs created by Disney-owned and other tourist attractions.

But the single-family home sector isn't as dominant in the Orlando area as in some other parts of the state. There are many multifamily housing permits in Orlando, says Duobinis, most of them for rental properties. According to the NAHB, which tracks single-family and multifamily housing permits, there were almost 12,000 single-family housing permits in the first eight months of 1999 in the Orlando area and close to 9,000 multifamily permits registered in that same time frame. Although condos are a form of ownership, the NAHB doesn't track what percentage of multifamily units are condominiums. Even so, Duobinis says, "When you have mostly minimum-wage jobs, you get a lot of apartments."

BROWARD COUNTY

In Broward County, where Ft. Lauderdale is located, American Metro/Study predicts that in 2000 there will be 8,000 single-family housing starts, roughly a 6 percent drop from 1999 estimates of about 8,000 single-family starts. Casey says the reason for the decline is a shortage of land for development. There is a shortage throughout the state, he says, but especially in South Florida.

"The job market continues to grow, but building permits are dropping," says Casey. Not only is there less land available for home building, he says, but "the [governmental] approval process is so tortuous that, literally, you don't have enough pieces to satisfy the demand. Even in Jacksonville, where there is relatively more land, it is a phenomenally tortuous process." In almost every market, Casey says, there is less land available and in production than there was five years ago.

Dabby is not so sure there is a land shortage in South Florida. The availability of land is a fluid thing, he says. Land that is off limits--for example, acreage outside the urban development boundary established by county government--eventually may open up, he says, causing the land supply to increase.

According to the October 1999 AREEA Report, a monthly journal of real-estate transactions in South Florida, in the second quarter of 1999 in Miami-Dade, Broward and Palm Beach counties, purchases of land for home building and developed home sites fell to a 20-year low. AREEA cites higher land prices, higher interest rates and the anticipation of more rate hikes as possible reasons for the drop. But Dabby suggests that land sales may have fallen because builders have enough in inventory to continue development without new purchases.

JACKSONVILLE

In Jacksonville, first-time buyers are more plentiful than in many other markets, says Reaser. The driving force behind the housing market in the northeastern part of the state is younger working households, rather than the retirees who are so numerous in other places. The home-building industry in this area benefits from the growth of jobs in back-office operations and claims processing and call centers, in addition to international trade, which is a smaller part of the economy, says Reaser.

There is a significant amount of single-family home demand in Jacksonville, notes Reaser. The demand is the strongest in the $100,000 to $150,000 range. The rental apartment market is also very vibrant in Jacksonville, although not as active as in Orlando, she adds.

American Metro/Study forecasts nearly 7,000 single family housing starts for 1999 in Jacksonville and 6,400 for 2000--a decrease of almost 8 percent from 1999 estimates. But 1999 was forecast to be up more than 9 percent from 1998. As for apartments, according to the NAHB, there were 2,280 multifamily permits recorded in the first eight months of 1999.

CENTRAL FLORIDA 

Central Florida, outside of Orlando, is less populated than the southeast and southwest parts of the state. That partly accounts for the area's attraction for home builders and retirees. In Ocala, between Orlando and Tampa, the homebuilding industry benefits from a large population of wealthy retirees.

In Melbourne, the home-building industry is fueled by a mixture of tourism--which provides service jobs--and retirees. To a lesser extent, employees of NASA also affect housing demand, says Reaser, although NASA is currently downsizing. Although American Metro/Study doesn't include either Ocala or Melbourne among its major markets, according to the NAHB, there were 2,330 single-family permits in the first eight months of 1999 and 860 multifamily permits.

NAPLES-FT. MYERS

The luxury condominium market is a significant part of the retirement and preretirement market here. Throughout the state, the $1 million-plus condominium category accounts for less than 5 percent of the market, says Reaser, except for places like Naples, where it accounts for as much as a quarter of the condominiums purchased-mostly by retirees and preretirees.

In the Naples-Ft. Myers markets--which by some researchers are considered one market--the number of multifamily building permits almost equaled permits in the single-family market for the first eight months of 1999, according to the NAHB. As of the end of August 1999, there were 5,270 multifamily permits recorded in the two markets, compared with 5,840 single-family permits.

According to Fishkind & Associates, Inc., an Orlando-based housing research firm, there were an estimated 7,697 single family housing starts and 5,779 multifamily starts in all of 1999 in both markets. In the new year, the single-family market will be only slightly more dominant than the multifamily market in the Naples-Ft. Myers area, with 6,320 single-family starts and 6,018 multifamily starts predicted.

MIAMI-DADE COUNTY

Miami-Dade County has a multidimensional housing market with an almost even split between new single-family and multifamily production. In 1999, according to American Metro/Study estimates, there were 4,841 single-family housing starts. In 2000, the research firm projects 4,800-a drop of less than 1 percent.

Luxury residences, says Dabby, account for 10 percent to 15 percent of the single-family home market in Miami-Dade. But the new condominium market is made up of roughly 40 percent luxury units, which AREEA defines as priced $150,000 and higher. According to AREEA, the condominium market is thriving here. In 1998, 5,282 condominiums were completed, of which 4,943 were sold.

Dabby reports that 50 percent of the condominiums built in Miami-Dade County are sold to foreigners. Contrast that with Broward and Palm Beach counties, where 10 percent to 15 percent are sold to foreigners. In the rest of the state, very few condominiums are purchased by foreigners.

Many of the luxury condominiums built in Miami-Dade are waterfront properties on Miami Beach, which seem to be magnets for wealthy foreigners-many of whom snap up these units for second, third or even fourth homes. For many f them, these condominiums represent hedges against political and/or financial disaster in their home countries. Not only do they provide a repository for flight capital, but they are beachheads on U.S. shores, should the owners' physical safety be threatened. There has been significant condominium demand from wealthy Brazilians, Argentineans, Venezuelans and Colombians, says Reaser.

Another strong influence on the housing market in South Florida is per- manent immigration by Latin Americans, many of whom are of either poor or of more limited means than condominium buyers. Guillermo Olmedillo, director of planning and zoning for Miami-Dade County, says, "Miami- Dade is a reception center for immigration." In fact, 67 percent of the county's population growth is due to immigration, says Olmedillo.

PALM BEACH COUNTY

In spite of all the younger people who have moved to Florida beginning in the mid-1980s, especially to South Florida, the state still has the largest proportion of senior citizens in the nation, mostly transplants from the Northeast and Midwest, according to Reaser. This is the market that is fueling much of the housing demand in southeast Florida, usually referred to as South Florida, and southwest Florida.

Within South Florida, one of the greatest concentrations of this population is in Palm Beach County. However, at the moment, the dominant kind of housing being built and sold there is single-family homes, because Palm Beach is also very attractive to families. In the first eight months of 1999, more than 4,000 single-family home permits were recorded in the West Palm Beach-Boca Raton corridor, compared with almost 2,000 multifamily permits, according to the NAHB.

American Metro/Study estimates that for all of 1999 there will be more than 7,000 single-family home starts in Palm Beach County, while in the year 2000 there will be 7,200 single-family starts.

Mortgage subsidiaries

Most large builders, such as Pulte and Lennar, have their own mortgage subsidiaries. For example, now that Century Builders Group is becoming a large builder, Pino says he may set up a mortgage subsidiary. At the same time, says Reaser, the mortgage industry is downsizing due largely to the decline in refinancing activity.

Although purchase activity was still going strong at the end of 1999, the decline in refinancing reduces the profitability of having an in-house mortgage company, notes Reaser. Still, mortgage rate increases contribute to better profitability, says the Bank of America economist. With rates on 30year, fixed-rate mortgages at 71/2 percent to 8 percent a year, the mortgage market will undoubtedly be healthy, she predicts.

Hortense Leon is a freelance writer based in North Miami, Florida. She is a regular correspondent for the Florida Real Estate Journal.