Mixed Signals in Orlando Housing Market: Housing Starts Decline, Locals Taking Out Home Loans

There was a loud crash of home sale figures in the Orlando housing market last month. However, a recent report frm Metrostudy indicates a few positive factors in the city, as well.

Mike Inselmann, president of Metrostudy, says there are reasons to be somewhat optimistic that the bottom of the cycle in the housing sector will occur in the next six months.

“Cutbacks in new production, aggressive incentives by sellers, the exit of the majority of investors and the fundamental demographic support for housing demand are positive indicators for a housing turnaround by mid-2007,” Inselmann says.

Among the factors that still could affect the housing market are economic uncertainties, the upcoming elections and inflation expectations, which “leave us with a less-than-clear vision of the housing picture in the next year.”

As for the Central Florida housing market, Anthony Crocco, director of Metrostudy’s Central Florida division, says move-ins remained strong, while the pace of new housing starts slowed during the third quarter. Demand for home loans in the sector could be worse.

The Orlando metropolitan statistical area of Orange, Lake, Osceola and Seminole counties posted 6,853 single-family starts in the third quarter, a decline of 32.4 percent compared with 10,142 units a year ago.

Crocco says the quarterly starts declined to a level comparable to the summer of 2003.

Other findings noted in the Metrostudy report:

• The annual single-family housing starts rate recorded during third-quarter 2006 was 31,948 units, down 9.8 percent compared with a year ago.
• Single-family quarterly closings totaled 7,821 units, 2.3 percent lower than 2005’s 8,006 units. However, Crocco notes, the quarterly closings pace remained strong at approximately the third-highest rate on record.
• Single-family inventory - comprised of units under construction, finished vacant lots and model homes - totaled 22,794 units at the end of the third quarter, an 8.5-month supply.
• During the third quarter, 11,197 lots were delivered to the Orlando market compared with 10,316 in third-quarter 2005. Vacant developed lot inventory was 50,760 units, up 29.6 percent compared with 39,168 lots last year.

Crocco notes that based on the annual starts rate, this level of lot inventory represents a 19.1-month supply, a level not seen since second-quarter 2003, when there was a 20.1-month supply.
He goes on to say Central Florida has responded well so far to a slowdown in mortgages in the area, with 1,000 fewer housing starts than move-ins during the third quarter.

However, even in a market with strong job growth such as Orlando, many potential buyers must first sell their existing home before buying another.

Because of this pressure on sellers and the continuing introduction of new projects to the market, Crocco says it is likely that the supply of new housing will remain inflated for at least the short-term. In time, however, sales around Florida should rebound.