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Housing boom now a whimper

Prices are starting to come down because labor costs are falling, but a turnaround may be 12 months off.

By DAN DEWITT
Published December 24, 2006

"We were actually crazy," said Dan Richard, the broker/owner of Exit-Success Realty. "It seemed like it was almost out of control, people flipping houses. It's much slower now."

That, of course, is the big story of 2006, the slowing of the housing market, though by some accounts those terms don't begin to describe it.

"This thing has almost collapsed," Per Berglund, a senior economist with Moody's Economy.com said in November.

The most telling statistic documenting this reversal is the number of permits the county's Development Department issued for construction of new homes. That dropped from 4,185 in 2005, a record high, to 2,765 through Dec. 19 of this year, with a much more pronounced decline in recent months.

But people in the business of building and selling homes don't need to see those numbers to know how things have changed. They can tell by the way they go about their jobs.

In 2006, Realtors said, they had to put much more time and money into each sale - carefully studying sales of comparable properties before setting prices, buying Internet and print advertisements, arranging open houses, and consoling disappointed sellers as their houses remained on the market for months.

Some home builders said the dip in sales at first made their jobs easier. All of them suffered from shortages of labor and materials when demand peaked in 2004 and early 2005, and for some the shortages contributed to serious problems.

Most notably, Steve Bartlett, owner of Coral Bay Construction Inc., blamed those factors when he filed for Chapter 11 bankruptcy protection in May. He was later charged with defrauding clients.

As the pace of building slackened in late 2005, builders had an easier time finding materials and workers to complete jobs. Then, toward the end of 2006, said Mark Vallery, owner of Vallery Custom Homes of Clermont, subcontractors' prices began to drop substantially because they needed work.

"Basically, they don't have anything to do, as opposed to two years ago when we had to beg them and offer them bonuses to get any work done," said Vallery, one of the builders in Brooksville's Southern Hills Plantation Club; he also has plans for a smaller development with homes designed to fit the character of a historic neighborhood north of downtown Brooksville.

The reduced labor costs mean that, finally, the prices of homes have started to drop. The least expensive houses he sells in Southern Hills, called cottages, have recently been repriced at $298,900, down from $350,000. Vallery, whose sales in 2006 dropped 70 percent from 2005, said he has reduced the prices of other homes in the golf course development by a full 20 percent.

One of the curiosities of the market has been that, for many months, prices refused to drop along with demand.

Berglund said the peak month for sales in the Tampa Bay area, which includes Hernando, was May 2005, when more than 5,482 homes changed hands.

Demand for new homes remained strong for several more months, by most accounts, and because of the lag time in applying for and reviewing permits the real slowdown in the number of county building permits issued did not show up until June of this year.

The county issued 207 permits that month, down from the high of 495 in December 2005; that compared with 71 issued through the first three weeks of this month.

June was also the first month analysts detected any drop in sales prices, Berglund said, though according to the Hernando County Association of Realtors, the average sale price of a house in 2006 was $205,177, about $15,000 higher than the year before.

But the average time each house stayed on the market increased by nearly a month this year, and sellers had to cut an average of nearly $10,000 from their asking prices to find buyers.

That backs up one of Richard's impressions: that sellers, when they set their prices, had a hard time accepting the new realities of the market.

"You hear some people say, 'My neighbor sold his for this much a year and a half ago, and I have the exact same house,' " said Richard, who said sales in his offices declined 30 percent this year. "We have to tell them, well, that was a year and a half ago. ... That's not working anymore."

If the slow market had an upside, it made sellers appreciate intelligent pricing and other services provided by skilled, experienced Realtors, said Jeanne Gavish, a broker who lives in Hernando but who opened an office in Land O'Lakes this year.

"We're relevant again," she said in November.

At the time, she said, she expected the market to turn around after the new year. Richard and Vallery say it will take longer - maybe until late in 2007 or early 2008.

"That's what our crystal ball is telling us," Vallery said.

The news wasn't all bad for the construction industry, said Dudley Hampton Jr., president of BJH Construction in Ridge Manor and vice president of the Hernando Builders Association.

Demand for commercial builders and remodeling - his specialty - has remained strong.

"I actually had a better year this year than in 2005," Hampton said.

Instead of trading up to a new house, he said, more homeowners "were thinking, 'Hey, I think I'll hang on to this house instead and maybe put a little addition on it.' "

Dan DeWitt can be reached at dewitt@sptimes.com or 352 754-6116.

Fast Facts: Source: Hernando County Development Department

Telling numbers

The number of permits issued for new home construction in Hernando County:

2005: 4,185

2006: 2,765*

* through Dec. 19.

[Last modified December 23, 2006, 22:10:07]