San Diego County’s Land Market On Its Own High Speed Train

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Unlike our Sacramento politicians’ boondoggle, San Diego’s land market has been picking up steam faster than a bullet train over the last few months.  According to reliable reports, over 2,400 new residential units were sold last year in San Diego County:

  • 1st Quarter 2012:   475 units sold
  • 2nd Quarter 2012:  680 units sold
  • 3rd Quarter 2012:   631 units sold
  • 4th Quarter 2012:   642 units sold

It is also important to note that approximately one third of the actively selling new home developments in 2012 consisted of condominiums or townhomes.  We expect that percentage to dramatically rise in the near term as monthly rental rates in many parts of the county now exceed monthly mortgage payments (i.e., P.I.T.I. and association dues), available at new construction condominium and townhouse communities.

Job Creation on the Rise

Evidence that this market momentum is growing can be seen in the sales volume reported for the traditionally slow 4th Quarter holiday season where sales exceeded the previous quarter and there was approximately a 30% increase in comparison to the 4th Quarter of 2011 (i.e., 494 sales reported in the 4th Quarter of 2011 versus 642 sales accounted for in the 4th Quarter of 2012).

Absorption Rates Expected to Increase

Although the average rate of absorptions of actively selling developments is still in the 2.0 sales a month range, a rapid decline in available new home supply is expected to boost absorption rates on remaining projects in the near term. For example, there were 113 actively selling new home developments in San Diego County during the 4th Quarter of 2011.  At the end of 2012, there were only 73 actively selling projects – that’s a 55% decline.  Approximately 60 projects sold out over the course of 2012, while only approximately 20 new projects entered the market during the same period of time.  Among the remaining new home developments in the County, approximately 2,233 units are left to either enter the market or currently remain unsold.  This equates to approximately an 11 month supply based upon a continuation of new home sales at a minimum of last year’s rate (i.e., approximately 2,428 annual sales reflecting a recovery beginning in the 2nd Quarter of 2012).  This bodes well for the health of the market going forward given 2012 sales did not pick up steam until the 2nd Quarter. Thus 2013 sales are expected to exceed last year’s total.  Historically, approximately a 12 month supply of unsold inventory (units offered for sale and remaining unsold), is considered approaching a supply/demand balance.

4thQ Actively Selling Projects

 Many housing analysts refer to the housing market rebound in San DiegoCounty and the nation as a “jobless recovery.”  While there is no question that the combination of a dwindling inventory and historically low interest rates have jump started the market, job creation in San Diego County over the last year has increased notably (approximately 29,000 annual net new jobs by year’s end in 2012 as estimated by Point Loma University Economist Lynn Reaser). This is a major factor which has largely flown under the radar due to the publicity related to a declining but relatively high unemployment rate (8.4%).

The Land Advisors Organization Team in San Diego is actively sourcing new land development and home building opportunities.  Call us today before this train is out of sight!

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

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

Are Some East Bay Submarkets Now Overcorrected?

Take this into account… According to Real Facts, the average 3 bed/2 bath apartment in Dublin is currently renting for $2,470 per month.  Compare this to the typical monthly payment based on a $450,000 mortgage at a 4.0% rate; the fully amortized payment is only $2,150 per month. Adding property taxes at 1.1% increases the monthly payment to $2,562. Finally, adding a couple more hundred dollars for homeowners’ association costs and/or insurance brings the total monthly housing cost to approximately $2,760.

While this example of home ownership is a few hundred dollars more than the average Dublin rental, it is also based on pre-tax income. To paint a true picture we need to factor in the tax benefit of ownership. In the case of our example above, the total interest and property tax deduction should be approximately $20,000 per year.  Assuming the potential homebuyer is within the 25% marginal bracket, this deduction is the equivalent of a $5,000 per year tax savings, or approximately $415 per month. Taking this into account the true cost of ownership is only $2,345 per month, which is $125 per month less than the average 3 bed/2 bath rental in Dublin.

While all this may not mean house prices are finished declining or that sales are going to double anytime soon, we can definitely read it as a sign that we have reached a key point in the housing cycle, and that bottom has to be close… if we haven’t already hit it!

Source: Steve Reilly, Marketing Consultant, (925) 368-3128

‘Orange’ You Glad You’re in Orange County?

In Apartment News: AvalonBay Communities commences construction on Phase II of Jamboree Village; rental rates continue to increase in most cities in Orange County (http://lansner.ocregister.com/2011/10/19/apartment-rents-back-to-pre-recession-levels/135453/); construction of two apartment projects on Parcels 1A & 2A at Tustin Legacy is planned for 2013, once infrastructure is completed (http://lansner.ocregister.com/2011/09/28/construction-at-tustin-starts-in-13/125743/).

As of October 1, 2011, conforming loan limits (FHA mortgage limits) were lowered to $625,500 for single family residences, from $729,750 (http://online.wsj.com/article/BT-CO-20111021-700012.html).

City Spotlight:  San Juan Capistrano is considering a 32-unit residential development and equestrian facility on The Oaks horse ranch, as well as a continuing care retirement community at The Orchards, a former Crystal Cathedral property (http://sanjuancapistrano.patch.com/articles/retirement-community-tweaks-plans-eager-to-develop-rancho-capistrano).

Be on the lookout for a new Orange County listing in the next couple of weeks!

Source: Allison Rawlins, Marketing Consultant, (949) 852-8288 x26