Alex Soderstrom
Nov 10, 2022
Jerome Henin is close to declaring the rest of the year a vacation for his real estate company.
That's because business has slowed so much in the last six months for Winter Park-based Henin Group Inc., a residential developer where Henin is the president. Henin Group this year has witnessed slowing demand while development costs have climbed upwards of 25%, Henin told Orlando Business Journal.
Why it matters: Home construction creates jobs and opportunities for subcontractors and vendors. Plus, the housing market often is considered an indicator of the health of the local economy.
"I don't expect Q1 will be exceptional," Henin said. "It costs way too much to produce these lots and these homes."
Henin isn't alone. Homebuilding executives from local firms and national construction giants present in Central Florida have seen business drop this year and adopted a gloomy short-term outlook as homebuyer demand wanes after interest rates more than doubled in the past year.
In fact, metro Orlando residential construction starts plummeted 61% year-over-year in August and dropped 2.6% year-over-year in September, according to the U.S. Census Bureau. These declines are stark after homebuilders enjoyed a red-hot year in 2021.
Christian Swann, president of Winter Park-based Surrey Homes LLC, told OBJ the housing industry is in "a bit of a nosedive." At Surrey Homes, sales have been "nearly nonexistent" for several months, Swann said.
Swann blames this drop-off on an escalation in the typical mortgage interest rate, which Orlando Regional
Realtor Association data shows jumped to 6.3% in September, up from 2.9% a year prior.
Still, Swann expects ongoing Surrey Homes developments in the Milk District and Horizon West to carry the business through the slow period.
Plus, Swann said the slowing housing market means land deals are less competitive, though sellers haven't adjusted their prices to the new market. "We're seeing a lot more land opportunities as a result, but I don't think any of those sellers have gotten the memo. It's kind of comical. We laugh at the sellers on the phone about it."
The competition for vacant land was fierce last year, but some builders today are walking away from potential deals. That's the case for Atlanta-based PulteGroup Inc. (NYSE: PHM), the most active Central Florida homebuilder per OBJ research.
At Pulte, new orders declined 28% year-over-year from July to September, sister publication Atlanta Business Chronicle reported.
To compensate for falling demand in the long term, Pulte is canceling deals for land where it would have developed new residential communities. The company canceled contracts for 11,600 lots in the third quarter, Pulte Chief Financial Officer Bob O'Shaughnessy said in a recent call with investors. It wrote off $24 million in deposits and pre-purchase costs associated with canceled deals. Pulte expects to spend $1.5 billion less on land in 2023 compared to this year.
"We're reevaluating every land transaction," O'Shaughnessy said.
It's unclear how many, if any, of those cancellations were in Central Florida, as Pulte declined to comment further.
The economic outlook for homebuilders is poor. Homebuilder confidence in October declined for the 10th consecutive month, and PNC Financial Services Group Inc. (NYSE: PNC) Senior Economist Abbey Omodunbi said sentiment among builders likely will decline further.
"With rising interest rates, elevated inflation and worsening housing affordability, the housing market slump will likely continue well into 2023," Omodunbi said in an October report.
Atlanta Business Chronicle Reporter Chris Fuhrmeister contributed to this report.