Southern California homebuilders got the buying-binge memo: Their best sales start to a year in 13 years comes as building permits hit a 14-year high.
The pandemic created a sales frenzy as home seekers grabbed historically low mortgage rates to shop for larger living spaces. This push came as the choices of residences to buy dramatically shrank.
DQNews/CoreLogic reports builders closed sales on 5,650 new homes in the first quarter in the six-county region — the fastest-selling pace for that period since 2008. Sales in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties jumped 31% compared with a year earlier when lockdowns choked the economy.
My trusty spreadsheet reminds me the region’s sales upswing wasn’t just for new homes: 55,527 existing homes sold in 2021’s first three months — the highest tally since 2006 — up 32% vs. a year earlier.
“Builders are moving fast to buy land and get communities opened up as quickly as possible to meet today’s homebuyer demand,” says Ali Wolf, who follows the new-home market for Zonda. “Contrary to the last cycle, home shoppers are armed with a good down payment and great credit scores. But there’s certainly a psychological component as well where people are afraid of missing out.”
But Wolf has “affordability” concerns as the buying spree pinches house hunter’s budgets, noting “the biggest wildcard remains mortgage interest rates. If interest rates rise too much too quickly, that will be the straw that breaks the camel’s back.”
Curiously, new homes have recently become an “affordable” option. Builders have refocused on lower-cost offerings in notable inland communities that grew in appeal as working from home became more common in the pandemic.
In March, the regional new-home median sales price of $570,500 was up only 4% in two years compared with existing homes’ $683,000 median, which was up 27% in two years. Existing condos’ median price was $530,000, up 19% since 2019.
The sales burst boosted local construction plans, too. Census data shows builders in a five-county region — minus Ventura — filed 6,482 permits for single-family homes in the first quarter, the busiest start of a year since 2007 and was 17% above the previous five-year average.
Now, this recent interest in new homes won’t solve housing supply challenges.
Historically speaking, the 2021 selling and planning pace is fairly modest compared with what was the norm before the Great Recession turned builders into highly risk-averse housing creators. Consider that first-quarter sales were 52% below 1988-2007. And permits were 43% fewer than the pre-2008 pace.
Or look at the shortfall this way: New homes represented 9.2% of all homes sold in Southern California in the first quarter. Before 2008, builder sales were 16% of the local market.
“Home-hungry buyers are in every county of Southern California. This surge of sales is welcome but expected, given the region’s historically low inventory versus demand,” says Caitlyn Lai-Valenti, Brookfield Residential’s senior director of sales and marketing. Her company sold out a 208-home project in Stanton in 13 months and has sold half of a 561-home development in Whittier in the past year.
Despite the pandemic era’s surge in activity, the building industry still has headaches. There’s a shortage of lumber that pushed pricing to record heights. Labor is in short supply, too, as many workers are either wary of the virus or found other employment. And builders now wish they’d bought more lots as landowners are seeking more money for developable land.
“We are in the midst of unprecedented conditions in virtually every respect,” says Richard Douglass, Trumark’s Southern California division president. “Record demand for houses and shortage of supply are at extreme levels. Building products and labor are still in a state of disruption. The virtue of flexibility and balance are the keys for our organization.”
New-home sales at the county level show the Inland Empire — the region’s housing “bargain” — was the sweet spot in the first quarter …
Riverside County: 1,831 new-home sales were up 39% vs. a year earlier, giving builders 15.3% of purchases there. Median? $476,000 (lowest-priced among SoCal counties) — up 10% in a year.
San Bernardino County: 1,143 sales were up 36% vs. a year earlier, giving builders a 13.8% share. Median? $486,500 (No. 5) — off 2% in a year.
Los Angeles County: 1,001 sales — up 47% vs. a year earlier, giving builders a 5.3% share. March median? $821,000 (No. 2) — up 18% in a year.
San Diego County: 834 sales — up 16% vs. a year earlier, giving builders a 8.2% share. Median? $724,750 (No. 3) — up 14% in a year.
Orange County: 728 sales — up 7% vs. a year earlier, giving builders a 7.9% share. Median? $874,500 (No. 1) — off 15% in a year.
Ventura County: 113 sales — up 43% vs. a year earlier, giving builders a 4.3% share. Median? $578,250 (No. 4) — off 3% in a year.
Local builders who have been, politely speaking, conservative in their building plans since the Great Recession now rush to catch up. Note the jump in building permits in local metropolitan areas for single-family residences, a key benchmark for home creation.
Riverside and San Bernardino counties: 3,008 homes were permitted in the first quarter — 28% above the previous five year’s average of 2,345 permits. It was the Inland Empire’s second-largest start to a year’s permitting since 2008.
Los Angeles and Orange counties: 2,700 homes were planned — 13% above 2015-19’s average 2,392 permits. It was the fastest first quarter since 2007.
San Diego County: 774 permits were filed — 0.1% below 2015-19’s average 785 permits. It was the fourth-best first quarter in the past 14 years.
PS: New home sales will continue to trend higher if pending sales indexes from Zonda prove true. By this math, Inland Empire builders signed 57% more contracts with prospective buyers in March than a year earlier; 53% more in L.A.-O.C.; and 14% more in San Diego.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at firstname.lastname@example.org
Source: Orange County Register