A cautious turnaround: Builders running low on new home inventory

Eight miles west of I-95 in suburban Boynton Beach, water gurgles down a man-made brook in front of the towering Valencia Reserve main gate. Behind it, diesel engines growl, hammers pound, and shovels dig into fresh landscaping beds.

Home builders are rebuilding – their inventories and businesses.

For the first time since the real estate bust, a recent study showed that construction of new single-family detached homes in Palm Beach County subdivisions is outpacing the number of homes people are moving into.

In other words, builders have finally run low on inventory.

In the second and third quarters of this year, construction began on 441 new Palm Beach County homes, while the number of move-ins was 389, according to an October report from the housing data firm Metrostudy.

In the first quarter of 2009, Palm Beach County's single-family new home construction bottomed out at 93, while move-ins stood at 269.

Housing experts say the turnaround in the later part of 2009 is a good sign for the economy.

Although the gain is modest – consider in the third quarter of 2005, nearly 1,400 new Palm Beach County homes were under construction – it's how the real estate recovery is expected to proceed, in baby steps.

"I think prudence has become one of the primary words in everybody's vocabulary," said Bill Hall, director of new homes and communities for Illustrated Properties, about the uptick in home construction. "A good builder, building a good product is going to sell their home if they are looking to the right area."

For GL Homes, that area is west of Boynton Beach.

Of South Florida's top 10 communities ranked by new home construction in the third quarter of this year, six were in Palm Beach County and three of those were GL Homes developments in suburban Boynton Beach.

While GL Homes never entirely left the market, the company's new construction sales statewide in 2008 were about 550 – half of what they were during the boom.

Now, GL Homes is looking to add employees with 745 single-family homes already sold statewide this year.

The extension and expansion of the first-time home buyers tax credit will undoubtedly increase demand for new homes.

Valencia Reserve, a GL Homes development that began construction in March, has plans ultimately for 1,061 homes.

"Our sales are up tremendously. We're seeing numbers we haven't seen since 2006," said Jill DiDonna, senior vice president for sales and marketing at GL Homes. "In 2007 and 2008, those years, you didn't even want to get out of bed."

The cheapest of new GL Home models list around $250,000 for a 3-bedroom, 2-bath.

While that may seem high to some buyers, Hall said it's a "workable number."

With basement-level interest rates and 20 percent down, a 30-year loan on a $200,000 mortgage would equal monthly payments of about $1,074, not including insurance, homeowner association fees and other charges, according to a GL Homes Web site.

"If you have a home in Palm Beach County for $250,000, it's considered affordable housing," Hall said.

A September Florida Realtors report showed the median home price in Palm Beach County was $242,200.

Martin and St. Lucie counties are not experiencing Palm Beach County's bump in new home construction, according to Metrostudy.

In Martin County this year, 30 new homes in planned communities have been built or are under construction. St. Lucie County stands at 43.

Don Santos, owner of Santos Construction Company in Port St. Lucie and past president of the Treasure Coast Builders Association, said Metrostudy's numbers can be a little misleading for Martin and St. Lucie because they don't count single-family homes built on private lots.

Still, he said the Treasure Coast is probably about two years behind Palm Beach County in terms of market recovery.

That doesn't mean Palm Beach can gloat about its small turnaround.

Brad Hunter, a chief economist for Metrostudy,said absorption of new homes is happening, but not quickly.

"I'm concerned people aren't moving in fast enough to allow the pace of home construction to increase very much," he said. "I'm worried it may be a slow comeback."