Land Prices Are Not the Only Thing Rising….

Ever heard of someone saying “when things are on a roll…enjoy it while it lasts, ‘cause it never does.” Well, I guess you could apply the same logic to interest rates.

Looking at how the tear land values have been in the last 12 months, it seems things are starting to cool off and the industry is taking a collective breath.  When the Federal Reserve Chairman speaks and hints at future actions regarding interest rates, the market is clearly listening.  In case anyone missed it, interest rates have risen for the better part of 100 basis points since May causing new home sales to slow and robbing buyers of purchase power, which illustrates that the housing recovery is still fragile and changes need to be addressed delicately as we move forward.  That being said, I think home buyers are realizing that low-interest rates will not last forever and they should engage while they can.

Link: http://blogs.wsj.com/developments/2013/07/16/rising-mortgage-rates-home-builders-shrug-them-off/

Source: Ryan Long, Senior Marketing Consultant, (916) 784-3329 ext. 16

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San Diego County: A Shortage of Land in a Housing Market Screaming For Inventory

You don’t have to be a whiz at Economics 101 to understand the supply and demand imbalance affecting available housing and developable land in San Diego County.  You only need to drive around town or talk to neighbors in order to understand that the County is poised to experience a crises with respect to finding available housing to meet the demand.

According to the San Diego Association of Governments, the pace of residential building permits in San Diego County over the last five years is about half of what the region now needs each year (12,000 units needed annually).  In addition, only approximately 4,300 resale homes are currently on the market within San Diego County – a four year low according to numbers from the local Realtors Association.  A six month supply of housing inventory has historically been associated with a balance in supply and demand.

Currently, there is less than a two month supply of housing inventory in San Diego County!

Building Permit Chart

The scarcity of housing supply has fueled double-digit annual increases in the median price of homes sold in San Diego County in each of the past seven months, according to Data Quick based in La Jolla.  Based upon a recent per square footage analysis from the Greater San Diego Association of Realtors, Single Family Home prices have risen 14% from a year ago and Condominium/Townhouse resale values have skyrocketed 21%.

According to Data Quick, the 19% gain in the price of homes sold in March 2013 was the highest annual gain seen since January of 2005 (a few months before the peak in home values prior to the recently past recession).

Would-be buyers active in the resale market must compete with a significant percentage of “all cash” buyers (now accounting for approximately a third of all transactions).  Thus, there is amped up demand for new homes which once represented one sale for every four to six resales.  New home sales made up only 7% of total residential home sales in San Diego County in March 2013.  The drop in market share shows that fewer homes are being constructed and fewer acres of developable land are available for builders.

Future demand for housing may only increase as unemployment eases and low interest rates (now below 4%) jump start throngs of current renters who understand that their total monthly obligations for a condominium or townhome are likely now less then the rent they are paying each month.

As a result, LAO is now seeing unprecedented demand for both entitled and un-entitled subdivision land throughout the greater San Diego Metropolitan Area.

Source: Bob McFarland, Marketing Consultant, (858) 568-7428

SACRAMENTO EMPLOYMENT NUMBERS GETTING BETTER

Now that the election is over, everyone in the homebuilding industry can take a collective deep breath and get back to work.  In spite of our worst fears about policy failures, taxes and over regulation, new homes are selling in the region and selling well.  Even before the election, anxiety over the housing market seemed to be subsiding while confidence growing.  There are many factors including supply shortages, interest rates, and relative affordability but most notable, have been  the employment numbers for the Sacramento region.  They have finally dipped below the double digit level and it has provided a boost for the region so severely squashed by the residential market downturn.  If the trend continues on the employment side, look for positive growth in new housing no matter what our government looks like.

http://www.bizjournals.com/sacramento/news/2012/10/19/area-unemployment-dips-single-digits.html

http://www.bizjournals.com/sacramento/blog/sanford-nax/2012/10/job-market-improves-in-some-professions.html

http://www.builderonline.com/legislation/what-obamas-re-election-means-for-housing.aspx?utm_source=newsletter&utm_content=jump&utm_medium=email&utm_campaign=BBU_110812&day=2012-11-08

Source: Jim Radler, Senior Marketing Consultant, (916) 784-3329 ext. 11

San Diego: How Banks Helped the Housing Market Get Back On Its Feet

“Shadow Inventory” was a dirty word for most of the past recession with respect to the housing market.  In general terms, it meant there was a large number of homes in foreclosure or soon to be foreclosed upon, which would flood the market and drive down home prices, and keep the housing market on its heels for years to come.  While no one will argue that the sheer volume of foreclosures nationwide and in Southern California is substantial, the threat of flooding the market has not materialized. 

 In San Diego County, as in most areas of Southern California, the Banks were smart and only released foreclosures to the marketplace in measured increments, so as to attract interest in inventory at reduced prices without flooding the market.  San Diego County foreclosures have recently been reported to be down 51% in comparison to a year ago.  As a result, investment groups interested in purchasing large quantities of lower priced foreclosure properties for the strong rental market have helped generate an overall market craving in San Diego County for relatively low-priced housing (generally posture below approximately $500,000).  Brokers active within marketplaces sporting significant volumes of housing priced below $500,000 report multiple offers for any available inventory, often driving up prices.  The average price of new and existing housing sold last month in San Diego County ($335,500), accounted for a 1.7% increase over the average price of homes sold in June of 2011.  The total sales volume in the resale market county-wide for single family detached homes through the first half of 2011 represents almost a 10% increase over the first six months of last year.

 

The market recovery for low-priced housing, coupled with long-standing reduced interest rates, is very slowly beginning to work itself up the price ladder of housing throughout San Diego County.   For example, in higher priced submarkets such as the North County Coastal Area, rates of absorption for new home developments have grown from an average of one sale per month per project last year, to approximately two sales per month in 2012. 

 Although generation of new jobs in San Diego County is headed in the right direction, the slow pace of employment growth has been the major force preventing a rapid recovery in the housing market.  With the potential cut back in government defense spending in San Diego County next year, the pace of job growth is not expected to pick up in the very near term.  However, continued low levels of housing inventory (the number of homes listed for sale at the end of the 1st Quarter of 2012 fell to its lowest level in nearly three years), government maintenance of low interest rates, and continued growth in demand for rental housing is expected to continue to fuel the housing market recovery, but at a continued gradual rate of growth.  Most economic forecasters are predicting housing appreciation in San Diego County in the near term to range between approximately 2% and 3% annually.  The moderate pace of market recovery may be a blessing in disguise; as a more gradual velocity in recovery will give the market its legs for more sustained growth; in contrast to the rapid inflation run-ups of past market cycles which eventually lead to faster boom to bust corrections. 

 Down the road, this bona fide housing recovery at the bottom of the “food chain” so to speak, will likely be looked upon as the flash point which signaled the beginning of the market recovery in the housing market in San Diego County.

 Source: Bob McFarland, Marketing Consultant, (858) 568-7428 ext. 12

Inland Empire… It’s FBO!

Economic news in Southern California’s Inland Empire appears to be looking up these days.  But is the homebuilding recovery here to stay?  Is it Facebook Official?

Last week, Land Advisors’ Senior Marketing Consultant Doug Jorritsma gave a presentation to a group of professionals regarding the state of the land/homebuilding market in the Inland Empire (Western San Bernardino & Riverside Counties).  On board with the wave of social media sweeping our communication style these days, Doug kept the message short, sweet, and direct, highlighting the market facts with a Facebook-like thumbs up or thumbs down.  Check ‘em out here…

DISLIKE

  • Unemployment/job generation still a big problem
  • State financial crisis looms large (Redevelopment Agencies and Schools)
  • Construction lending still challenging
  • Number of housing permits is currently 28% of what is was at the market’s peak

LIKE!

  • The worst is behind us!
  • Lenders dispositions are done! (Except for the little stuff.)
  • Most public and private homebuilders will be increasingly active going forward
  • Single and multi-family building permits are on the rise – (Currently DOUBLE 2009 numbers)
  • Institutional capital and private equity slowly giving THUMBS UP
  • No finished lot supply creates a near-term shortage
  • Land values are slowly trending up
  • Foreclosure activity is trending down
  • Five-month upward trend of improving new home sales
  • Big box industrial gets a double THUMBS UP
  • Interest rates are to remain low through 2014
  • Consumer confidence is improving which means retail sales are improving
  • Apartment vacancies currently at 4% – 6%, rents are up 1% – 5%

Land Advisors ♥’s Social Media

Source:Doug Jorritsma, Senior Marketing Consultant, and Winn Galloway, Senior Marketing Consultant (949) 852-8288

Big Moves and Bright Ideas in Northern Central Valley

Amazon.com makes a move (to CA): Even the cynics out there are saying that NOW is the time to buy a home.  With interest rates and home values at an all time low, it is certainly a buyer’s market these days.  The problem is remains however, that limited numbers of potential buyers have enough equity ready to put into buying a new home.  The unemployment rate in California and nationwide is still painfully high and we are all waiting for job creation to help boost the economy and the homebuilding industry. 

Good news for California:  Amazon.com made a promise last year to bring 10,000 new jobs to California, and now, according to SacBee.com, the online sales giant is apparently ready to make good on that pledge, starting in western Stanislaus County.  Amazon is expected to announce soon it will build a 1,500-employee distribution center off I-5 in Patterson, west of Modesto.

Patterson profile:

  • Although Patterson has experienced few to no home sales in last two years, the city has shown to be a viable submarket for home sales. From 2002 to 2009 just short of 3,000 new homes sold in this area.
  • Fewer than 200 “finished” lots remain within the City of Patterson.
  • 1,500 new Amazon jobs will dramatically reduce current 18.4% unemployment rate.

New Vision for Merced: At the Merced City Council meeting this month, the public weighed in on the Merced Vision 2030 General Plan, which City officials hope will turn Merced into a dynamic urban entity by 2030.

The concerns at the meeting varied… UC Merced officials were elated with the inclusion of the campus and the University Community housing project in the “Vision.”  On the other hand, some city residents were concerned about the population projections and the potential impacts on agricultural land.

The City Council approved the plan by a 6-1 vote.  Castle Farms, a proposed mixed-use development at Highway 59 and Bellevue Road, and Mission Lakes, a community plan bounded by Mission Avenue to the north, agricultural land to the south and Highway 59 to east, were both left out of the plan because some of the City Council members believe the footprint of the plan is too big.

Bright Idea on Campus: They say college is the time to “find yourself.”  Well the students of the newly-opened University of California, Merced are taking that idea to the next level, and are finding themselves in some pretty nice homes.  Many students are ditching the traditional, crammed on-campus dorms for a more spacious and luxurious option: the vacant foreclosed “McMansions” left behind by the housing boom.

Nearly 5,200 students attend UC Merced, but the university has only enough campus housing for about a third of its population.  The Merced community is hearing mixed reactions from the students who are renting the 5+ bedroom homes and using them in an unconventional way, but overall the sentiment is currently positive.  Neighbors are happy to not have homes left vacant on their street, and the current title holders are happy to be collecting some kind of income from the properties.

Source: RJ Radler, Senior Marketing Consultant, (916) 784-3329 ext. 12