Our Lay of the Land Conference archive is full of helpful expertise for landowners. In this podcast from the 2018 conference, Paul Romanowski, the Florida Region President of DR Horton, Inc., reviewed the residential development market.
Paul’s work in the Florida real estate market began more than 25 years, and he joined real estate developer DR Horton in 1999. He is responsible for Florida, Mississippi, and coastal Alabama, where the company has over 250 active communities.
Paul provided the following overview of the residential market in Florida, which has continued strong growth since the time of this recording. In 2017, the market represented about $140 billion worth of sales and industry, with about one-quarter of the activity in new homes.
A robust construction industry
Building permits for residential units indicate the health of the construction industry. The permits issued in the previous year were 117,000, or about 10% of the total U.S. market of 1.2 million. Within Florida, the I4 corridor was the heart of the market with about 45,000 single-family home permits. But there was robust activity throughout Florida and across most demographics.
Paul noted that DR Horton focuses on more affordable price points, focusing on the company’s new Express Homes. The houses are simple but have desirable floor plans. In the affordable housing market, DR Horton is the 6th largest builder in the country.
Factors driving Florida’s growth
Jobs and sunshine drive growth in Florida. Jobs drive new home production, and people still want to move here. As in-migration continues, the baby boomer demographic drives strong demand for second homes for pre-retirement and retirement. In Florida, retirees are still a powerful force.
But at the end of the day, consumer confidence is vital. People will buy when they feel good about the conditions and environment. And first-time homebuyers also need to be able to purchase a home they can afford.
Residential land market trends and opportunities
We’ve enjoyed great opportunities to buy homesites and lots at below replacement value. Our key challenge is the ability to produce. Oversupply is not an issue in the current Florida residential market.
We are at historical lows in inventory, and we learned hard lessons from the downturn in 2008. Today, a homebuyer needs a job and a good credit score to secure a mortgage. We must continue to keep checks in place.
DR Horton is in the market to buy land and is always looking for the next good lot opportunity. Foreclosed lots from the previous downturn are suitable for development today. But, residential building is a process.
We buy defunct land and tie up that raw piece of ground through an entitlement process. You don’t just put a shovel in the ground to develop in six months and build houses in 12. The development process is generally two to three years.
Attributes of desirable residential development land
In the past, we wanted a homebuyer lined up before building. But today, it’s not rocket science to know if development will succeed.
We look for access points where people can get to work. We look for access to services and retail. We eyeball that next interstate exit down the road for future development.
Homebuyers sometimes follow the “drive till you qualify” rule for finding affordable housing. So, we built many homes outside the core of the I4 corridor. We build in the Panhandle, Ocala, Melbourne, and St. Lucie. Second-tier markets are very productive for us.
If you are thinking about selling your land, think about its position for residential development. Call Dean Saunders or his group to sit down and figure out what your property might be worth.