While market conditions continue to keep demand high for resident real estate, myriad issues in new-home construction likely will keep inventory low.
Central Florida real estate is about as hot as a typical local summer. The forces that kept the 2020 market strong, despite the COVID-19 pandemic, remained in play last year. And some industry professionals believe that will be the case in 2022 — and beyond.
The biggest challenge in the local real-estate market has been inventory. According to the Orlando Regional Realtor Association, the median home price in October was $325,000 — up from $269,950 at the same time in 2020. Inventory for the month was 3,406 homes — down from 3,880 in October 2020.
“It’s a handful of things that add up to a big decrease in availability,” said Realtor Tennille Biggers, of Keller Williams Elite Partners III. “We can’t ignore the low interest rates. They have continued to be low in 2021. They were really low last year, too, and I think that really got the fire burning.”
“The government has a responsibility to leverage the economy and spur on the economy when it’s not doing well,” said local Realtor Paul McGarigal, of Remax Properties SW Orlando. “That’s what they’re doing now, and that’s what they’ve been doing for the last two or three years — and I don’t think they’re going to change anytime soon.”
THE FLORIDA EFFECT
Shifting workplace dynamics and the desire for single-family homes over apartments are among the lasting effects of the COVID-19 pandemic. The need to stay at home caused renters to consider buying and owners to consider larger properties. But many owners across the country want something more than a bigger home — a change in environment.
According to U.S. Census data, Orange County’s population rose by 283,952 residents between 2010 and 2020. The factors making Central Florida a draw were in place long before social distancing and mask requirements.
“We’re very lucky in Central Florida,” McGarigal said. “We have a very low unemployment rate, we have no state income tax, we have a Florida homestead exemption … and there’s the climate.”
Florida’s reputation as a vacation destination is a big selling point for investors, and many vacation properties usually end up in the renters market inventory for most of the year.
“Every community in Windermere and Winter Garden has a small percentage of vacation homeowners who hire a property management company to watch over their property while they’re back home,” McGarigal said.
Other investors will buy with the intent of cashing in on the long-term rental market, but some Realtors are seeing that inventory dry up in the current climate.
“A lot of people have either a vacation home or a rental property,” Biggers said. “I have found that quite a few of them have moved (into their rental property). So, maybe they had a vacation home and they lived up north, and then all of a sudden, their mailing address changes to the rental home. They may just do it for a year or two, but that has removed some listings that would have otherwise gone on the market.”
The stress on inventory is not only coming from the consumer side. Builders are experiencing issues that raise costs, decrease their profits and hold up projects for months at a time.
“The builders are having a hard time buying land and building subdivisions,” McGarigal said. “And when they do, the costs are way more than they were last year, five years ago or 10 years ago. At the same time builders have been seeing the lack of supplies — windows, shingles, appliances, air-conditioning units — and they still are still feeling that.”
Aldo Martin, CEO of Bellavista Building Group and Bellavista Homes, knows these problems all too well.
“The demand for housing is very strong, but the other side of the coin is that construction costs have increased — for us, it’s (more than) 30% and continues to increase along with delays,” he said. “In the past, we were able to turn a project around in four, maybe six months with a typical build for a single-family or townhome. It’s now seven, eight, nine months.”
The supply-chain issues that have plagued builders for more than a year have resulted in costly delays and also forced builders to pay more for materials. According to Martin, the situation has deteriorated to where many clients require proof of the fallout.
“We keep a journal to track all of the notices we receive from our vendors and suppliers of price increases,” he said. “Because we realize that just saying it goes over people’s heads. They need to see, in writing, that pretty much every day a different supplier is notifying us that there is a new price for a product. It’s shocking.”
But the weak link in the supply chain is not always in materials costs or availability.
“A lack of raw material is an issue, but then you have transportation,” Martin said. “For example, most housing units in Central Florida use concrete block. There’s an issue now that the block is available, but there’s not enough trucks and drivers to take it from the manufacturer to your job site.”
The lack of drivers speaks to an overall labor shortage that rivals the supply chain as a challenge for the construction industry. Having supplies means nothing without the labor to put them to use. And the squeeze is driving some companies to devious solutions.
“You have recruiters that are actually going to your job site with cash,” Martin said. “We heard that one recruiter was actually the person that was bringing in a food truck. She was recruiting for another general contractor, taking crews from our jobs and sending them somewhere else.”
The overwhelming workload represents an opportunity for income that creates a greater need for compensation. The solution can be lucrative and exhausting, but rising costs are the final result.
“If I’m an electrician and I have a limited number of crews, and they can only produce a certain number of working hours, I want to keep raising my bids, so builders don’t call me anymore,” Martin said. “But that’s not the case, because demand is so high, the bids are getting accepted.”
Even Martin is facing that problem with developers demanding to see their projects through no matter the cost.
“On a daily basis, I have potential new clients knocking on the door, asking to be in the production pipeline,” he said. “I had a meeting with someone that I was expecting to tell me he’s not going to move forward, because I was giving him a price that was way off, and in the end he said, ‘OK.’”
According to Martin, the factors contributing to the ongoing demand show no signs of slowing down. And as the delays and costs continue to mount, the sales side of his business must adjust accordingly.
“What we’re doing on the sales side is limiting the number of units we put up for sale and waiting until the last minute to put a price tag on them,” he said. “So we can have confidence on what our cost will be and protect our profit as much as possible.”
KNOWLEDGE IS POWER
Predictions can vary, depending on the source. And many trends have a way of blowing long-term predictions out of the water. But for anyone intent on testing the waters in the current climate, the best route is the practical approach.
“The best advice I can give to buyers is to sit down with a Realtor and get to know what’s happening in your neighborhood,” Biggers said. “Have the market analysis run on your property and understand what’s happened in the last few months in your neighborhood, as far as property values. And then the Realtor can also talk about your goals, and then they can you can plan from there.”
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