Window of Opportunity

There'll be more choices, moderating price increases and, at least until the market picks back up, builder incentives. That, combined with low mortgage interest rates, means that it's a terrific time to buy.

But our panel has a warning for fence-sitters: Wait at your own peril. While new homes in Northeast Florida will continue to be affordable relative to other Florida markets, the current buyer's market won't last long. In fact, it may already be changing as inventories are worked off.

According to Norman Bray, executive vice president of Amelia Island Company, the second quarter of 2007 will probably mark a return to normalcy-which means a relative equilibrium between supply and demand. "I think excess inventory will be absorbed at a more rapid pace than in previous slowdowns," Bray says. "I don't have a crystal ball, but hopefully by the middle of next year we'll see the market pick up aggressively again."

Sherry Davidson, president of Davidson Realty, agrees. "Realistically, it may be second quarter this year that the market will start to correct," she says. "When that happens, it won't be as easy to get concessions from builders and prices will begin to rise."

Economic factors point to a strengthening market, say panelists. Walt O'Shea, Hines vice president, notes that some 18,000 new jobs have been created locally over the past year. That, plus high-profile relocation announcements from Fidelity Investments and Merrill Lynch, "are a testament to the continued attractiveness of Jacksonville," O'Shea says.

Plus, Northeast Florida boasts a median household income that's 9.7 percent above the national average while median home prices are 12 percent below the national average. That means housing in Jacksonville remains relatively affordable, especially when compared to other Florida markets.

And new homes remain excellent investments, our panelists agree. Most say appreciation should continue in the high single digits up to about 10 percent annually-a solid but sustainable pace over the long haul. Here's what else these industry movers and shakers had to say:

BUILDERS

What is the outlook for your business this year? Do you expect to sell more homes, fewer homes, or about the same?

Riley: There are about twice as many listings on the market right now as in 2005, so we've lowered our 2007 sales and closings projections in some neighborhoods. We're going to continue to sell homes in our current neighborhoods at our projected levels, but obviously the market conditions are somewhat challenging. We think of the current market change as a supply-side correction.

Coppenbarger: I think we expect levels to go back to what they were in 2004, because that was pretty much what the market was pre-investor.

Morris: We expect to sell about the same number in 2007 as we did in 2006, or about 75 homes. We're now in eight communities and we just opened two new communities. We're building in St. Johns, Nassau and Clay counties as well as St. Marys and Palm Coast. St. Johns and Clay County seem to be the strong growth markets, whereas Nassau and St. Marys are the emerging markets.

What are the major factors influencing your outlook?

Riley: Most builders are currently trying to sell through their existing inventory, so we'll monitor MLS activity to help us gauge market demand. I expect that the market should return to normalized levels-what we saw in 2004 or 2005-starting in mid-to late 2007. Several years ago, we had so much demand and that's now gone the other way. There's about a six-month supply [of new homes for sale] as opposed to the three-month supply in 2005.

Coppenbarger: When people want to buy a house, the first question they ask is, "Do I have a job?" The second question is, "What are interest rates?" I think we still have a very good job market here, and I think interest rates are still pretty good at about 6 percent.

I think there are some parts of the state where the market will stand still, but not here. Single-family home sales in particular won't suffer due to a lack of job growth. I think we'll go back to 2004 levels, but even if we go back to 2003 levels, that's okay. We have a slightly overbuilt situation now, but once that's gone then we'll be building again.

We're opening up about three or four new projects this year, including townhomes in OakLeaf Plantation, condos on the Southside and three single-family developments. Overall, we have a lot of good things happening in Jacksonville, but we just have to manage our inventory a little better.

Morris: Sales were down significantly in 2006 compared to 2005. We had a record sales year in 2005 and we expect a flat year in 2007 due to rising interest rates, completed inventory, increased listings in MLS and longer time to sell.

What are some things you may do differently this year to adapt to changing market conditions? For example, do you plan to use incentives and special promotions?

Riley: The market is in that mode right now, and we do have some incentives, such as special financing. There are probably 100 different loan programs, and we gear our programs to our buyers' needs. Through our lender, CTX Mortgage, we try to give our customers a little better rate than market rate.

Coppenbarger: Mostly what we're doing, especially if buyers are military, teachers or policeman, is buying down the interest rate. And with some people we'll finance for six months so that they can sell their current home.

Morris: Absolutely. We already have some of that in place, and are looking at each community and doing some specialized target marketing. Incentives include buying down mortgage rates, paying closing costs and other contributions and offering golf memberships in Palencia and Amelia National.

It seems that with price increases moderating and inventory up, buyers are in a good position this year versus last year. Do you agree that it's now an ideal time to buy a new home?

Riley: I definitely agree that it's a great time to buy. One of the best reasons is that interest rates are still very attractive, historically speaking, and incentives are helping to make them better. Other economic indicators, like strong job growth, also indicate that it's a great time to buy.

We try to look at each buyer differently and tailor our programs to what will satisfy the buyer most, such as paying closing costs or homeowner's association fees. Each buyer's situation is unique and needs to be handled accordingly.

Coppenbarger: I believe it's about as low as it's going to be, and what typically happens is that people wait too long. It's a real, real good time to buy, and I think if buyers wait the prices will go up.

Morris: Yes, I think it's an excellent time to buy a home, and I think everything will begin to moderate in late 2007 and early 2008. In 2008, I think we'll start to see a rebound.

What are the most requested amenities or upgrades on the new homes you're building?

Riley: All of our communities have some type of recreational feature. Most recently, we've completed a mini-aquatic center at Fleming Island Plantation. As far as upgrades are concerned, they vary greatly by community, type of home and type of homebuyer. For example, what our first-time condominium buyers choose will differ significantly from what a person buying their second single-family home will choose.

Coppenbarger: It depends on the section of town and the product. Our media centers or home entertainment centers are pretty big, and obviously people want to upgrade with wood floors and kitchen cabinets. We're also doing outdoor fireplaces and barbecues, especially in the upper-end homes.

Morris: Most folks are concentrating on their kitchens and requesting upgraded cabinets and granite countertops. Structural options such as bonus rooms are also popular.

Are buyers generally aware of green building?

Riley: We're involved in the Green Built Homes of Florida program with Northeast Florida Builders Assosciation and JEA, but we're not currently marketing any homes with those features. Until we fully participate in that program, we'll continue to develop homes that use products and materials that make them as energy- and water-efficient as possible.

Coppenbarger: Generally our homes are energy-efficient. Many buyers will ask about the efficiency of appliances, windows and the rest of the home. We're putting in tankless water heaters as standard features in our condos. Thirty percent of the heating bill is hot water, and with these heaters, water is only heated when you need it.

Morris: Not very often. We do have a healthy home program, but as far as green building we're still evaluating that for the future. We do use Energy Star appliances.

REALTORS

Which three areas of Northeast Florida would you describe as the most popular for buyers?

Davidson: St. Johns County has been extremely popular, but I don't have firsthand knowledge about other areas. The school system is huge. It's been ranked very high nationally and in Florida. I think the perception of Duval schools as opposed to St. Johns schools is not as high.

Whatley: I really can't narrow it down to three areas. There's so much economic growth in Jacksonville, and so many diversified businesses. Buyers tend to go with what's most convenient or important to them, whether it's to be close to a particular school or work, or to have accessibility to some type of hobby or activity that they're particularly close to. There are a lot of great areas that buyers can choose from.

Bray: Nassau, Duval and St. Johns counties are very, very hot in all different product types, from high-end, waterfront properties to subdivisions with [production] homebuilders such as Centex, Maronda and KB Home.

What do you expect new home appreciation to be in 2007?

Davidson: Even in Jacksonville, all the markets are different. At the Beaches it's still very investment-driven. But in [St. Johns County] we didn't have that situation. We're seeing the supply go down here already, and it's just guessing how many months before we get back to a balance. I do see appreciation in new homes, but I think it will be less than 5 percent.

Whatley: I think it will be in the single digits, anywhere between 4 and 7 percent. We've had double-digit appreciation, but there's been adjustment in the last three or four months. That may change in 2008 because election years really do have interesting things that happen around them, and the presidential election could really make a difference.

Bray: I certainly don't think it'll be what it's been in the prior three or four years. There's no way we can sustain that, but I think that even with this slowdown, we won't have any sellers who'll have to lower their price if it's priced at market value. Next year, appreciation will be more in the 6 to 10 percent range rather than the 20 percent we've seen in the last two or three years.

If a buyer has been sitting on the sidelines, what are the top reasons you would give to him or her to jump into the market now?

Davidson: I think everybody wants to know that they're buying at the bottom of the market, and right now builders are giving incentives. Once prices start going back up, you won't see the same incentives. I think there's a lot to be said for buying when it's close to the bottom rather than waiting for prices to start to rise.

Whatley: If that's the house you really like, don't wait because you'll only be sorry. I feel that prices are going to go up because this is a growing community with a very diverse economic base. And the sooner you buy and lock in your homestead exemption, then your taxes can't go up by more than three percent a year as long as [the home you buy] is your homestead.

Bray: It's certainly a buyer's market, there's no doubt about it. There's much more property to select from, and there are people who don't have to sell. But in any area where you're looking to buy, you can probably find a large selection of homes in your price range. And interest rates are even more favorable now than they were several months ago.