Builders pull back as market slows down

Evidence of a slowing housing market continued Monday as WCI lowered its second-quarter earnings expectations and The Ronto Group said it was delaying two planned condominium communities in Bonita Springs because of a significant drop in demand.

Combined home-building orders for single-family and tower residences were down 50 percent at WCI for the first two months of the second quarter compared to the same time last year, according to officials with the Bonita Springs-based developer. Most of the decline was from a much lower demand in the Florida market, the company said.

Company officials have reduced by 20 percent the estimate for the number of new orders and said earnings would come in below the low end of their May 9 guidance of 75-85 cents. Perhaps most significantly, the company announced that instead of the 11-13 tower residences planned for release this year, WCI now plans to release only three to five.

WCI isn't the only company dealing with the cooling down of the red-hot housing market by delaying the introduction of new homes and condominiums.

Officials with The Ronto Group said Monday they will delay their two communities planned for East Bonita Beach Road from early 2007 to late in the year.

Robin Driskill, the company's director of sales and marketing, said the high inventory of housing stock in Southwest Florida prompted the delay.

"It wasn't so much we didn't want to move forward with (the communities); it is that there is so much investor product diluting what's available," Driskill said.

Housing inventory is growing across the country, according to a new study. The number of existing homes listed online for sale in the largest 100 metropolitan areas in the country reached 2.3 million in May, 1 million more than the year before, according to the Corzen Real Estate Indicators survey.

The trend is similar in Southwest Florida, where both Lee and Collier counties have more than a year's supply of homes already on the market.

That makes it a smart time to slow things down, even at the cost of a temporary impact on profit, Driskill said.

"It does affect our bottom line. You have something out there that you want to put to work for you, but you are also not dumping money into the ground," Driskill said. "We have to do that or we dilute the value of our product, and everyone needs to look at it like that. It is just not wise."

How much a builder or a residential community is impacted by the market slowdown depends on a variety of factors, said Kitty Green, regional vice president for the Bonita Bay Group. She said everyone, though, is feeling some effect from a housing market that has seen astronomical increases in value in recent years, at least some of which were fueled by real estate speculators.

"Our Sandoval community in Cape Coral is a primary buyer community, but they have to be able to sell their existing home to buy the next one, and with all the resales on the market, many are having trouble selling their homes," she said.

One worrisome sign is that not only have sales dropped, the amount of inquiries have too, Green said.

"The decline in both is worrisome for different reasons," Green said. "Traffic is prospective buyers and is essential for future sales."

Most builders don't do much advance building these days, she said, and the softening is giving many a chance to catch up on their backlog. What many are likely to do, however, is slow down the launch of new communities and products until the market stabilizes.

Such a slowdown in new homes and condominium construction is necessary to reduce building inventory levels and prevent market values from dropping even more, said Mike Timmerman, managing director of Hanley Wood Market Intelligence.

"If people put things on hold for a little bit, it will help get the market into an upswing a little sooner," he said. "If the inventory starts shrinking, it will motivate buyers to buy and encourage sellers not to offer price reductions."

The cutback in new homes was inevitable, given the percentage of speculative investment in the market during the course of the last year, said Mike Reitmann, executive vice president of the Lee Building Industry Association.

"Don't know to what extent each one will do that, but each one is going to be evaluating the situation and doing what is prudent," Reitmann said.

Equally inevitable was the downward revision of profits and earnings for builders like WCI, Toll Brothers and Pulte Homes seen in recent weeks, said Brad Hunter of MetroStudy, a Palm Beach-based analysis firm.

Construction, insurance and labor costs have risen, interest rates are continuing their climb and the ability of builders to pass those costs to consumers has gone down, Hunter said.

"That's going to have a negative impact on earnings," he said. "Plus, sales are off drastically and traffic is down. I expect to see similar reports from other builders as the summer goes on."