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

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Around the Bend in the Bay Area

It feels as though we’ve turned a huge corner in the Bay Area real estate market.

Silicon Valley is producing jobs again at a solid pace (many are anticipating stock option millionaires boosting demand), and the commercial market is rebounding as office space has been absorbed and demand for new space is driving new construction.

Vacancy rates, rent increases and CAP rates for apartments are all at all time highs, spurring tons of new apartment development.

While all these data points are great signs for the recovery, they come with one potential downside—increased construction costs. While we haven’t seen it dramatically impact land values yet, a demand for labor and materials increases, construction costs appear to be headed up for the first time in many years. This could act as a bit of an inhibitor in any large run up in land prices.

Source: Steve Reilly, Marketing Consultant, (925) 791-2194

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