While Florida resale housing inventory is finally on the rebound, demand for new single-family construction remains high as plenty of ready-to-build land is available across the peninsula.
Many industry experts are anticipating a decline in demand for new home construction as more resale inventory hits the market, but a combination of macroeconomic headwinds, specifically around Florida’s coastal condo market, are enabling growth in the new home construction market in 2024.
Overall, resale inventory in Florida is up around 57% year over year (compared to 25% nationally), but according to Zonda’s Chief Economist Ali Wolf, homebuilders have been able to shake off rumblings of a downturn. However, some degree of a decline is still expected by some industry experts, but when it occurs is anyone’s guess.
“The interesting caveat is that most homebuilders think [increased inventory] will impact sales, but we haven’t seen a dramatic downshift yet,” Wolf said during a recent ResiClub interview.
According to Wolf, single-family builders continue to thrive because existing homes and condos in certain areas of the state are feeling the impact of higher insurance rates, while still working through the aftermath of Hurricane Ivan in September of 2022.
A similar sentiment was echoed by executives at the nation’s largest homebuilder during a recent earnings call. D.R. Horton CEO Paul Romanowski said rising insurance rates in Florida are expected to create headwinds, but the majority of the issue is confined to coastal areas rather than some of the up-and-coming new construction markets across Central Florida. He also believes a significant portion of the new inventory is overpriced or in need of repair.
“We expect it’s going to take significantly more homes to come on before we see it be a lot of impact on our ability to sell,” Romanowski said.
D.R. Horton’s executives stated that they still feel good about the Florida market in general, especially as they continue to build new single-family homes in markets all across the peninsula. Most of the firm’s new homes are far from the coast.
Florida’s condo market, which is a large chunk of the resale inventory, also seems to be more vulnerable than single-family construction. New laws related to existing condo structures as well as the fear of receiving a large building upgrade bill are working against the resale market.
A structural safety law passed after the 2021 collapse of the condo building in Surfside, Florida is inhibiting demand for coastal condos. Under the new regulation, buildings must pass structural inspections no later than 30 years after they’re built. While these higher insurance costs are causing more people to sell, mortgage lenders are increasingly reluctant to take on the risk associated with these buildings. Many buyers are nervous about investors eventually buying up condos only to knock them down and replace them with new ones.
While lower demand in the resale condo market could eventually trickle into the new construction market, there is still a ton of potential upside for homebuilders. As rates begin to fall, many homebuilders are anticipating a large uptick in investor activity.
It’s easy to see why new construction remains a highly appealing option. Not only does it come with lower insurance bills, but the cost benefits of buying a brand new home can be highly attractive, especially for first-time buyers or downsizers who are looking for less maintenance and upkeep, or those who don’t want to worry about costly repairs and replacements in the short-term.
While resale inventory will continue to rise in Florida, all of the consumer benefits of buying new combined with the high quantity of developed infrastructure and plenty of ready-to-build lots across the state will continue to make Florida a highly attractive market for homebuilders for quite some time.
