To buy or not to buy, that is the question facing many potential homeowners as they watch mortgage interest rates tick higher along with home prices.
The biggest challenge facing the residential real estate industry here in San Diego County and many other places in California is the tight supply of homes for sale. The only way inventories can be increased is by existing owners putting up their homes for sale or homebuilders increasing production.
“More homes clearly need to be built in the West to relieve price pressure, or the region could soon face pronounced affordability problems,” said Lawrence Yun, chief economist with the National Association of Realtors.
Yun is suggesting the affordability equation will be affected by higher prices as the demand for homes grows with a limited supply available. The median price of a home sold in San Diego County rose in July to $483,800, up 23.3 percent from the same month in 2012, according to the California Association of Realtors.
At least one builder, KB Homes, is taking on the challenge to provide more homes. The company announced in August that it has acquired land for two new developments in Lakeside and La Mesa with construction to begin immediately.
“We’re very pleased to have secured these two prime parcels of land in one of the county’s most popular areas where there is a limited number of new-home communities,” said Steve Ruffner, president of KB Home’s Southern California division.
To be sure, developers have been hard-pressed to build in a market stressed by limited land, difficult financing and a consumer base uncertain about the timing and benefit of homeownership. But builders are positioning their properties to take advantage of a growing number of potential buyers.
“We believe the recovery is real and we are in the early stages of the rebound. Our average sales contracts per community are about where they were in 1997-1998, several years into the previous cyclical recovery,” said Douglas Yearley, CEO of Toll Bros., a developer of luxury homes with a community in San Diego.
A survey by Pulte Homes, a builder with homes for sale in three San Diego County communities, finds homebuyers are optimistic and ready to make a move, whether to buy a first home or move up from an existing home, a practice that has been missing during the residential real estate recession.
“One of the most intriguing findings from this survey is the optimism and the willingness of homeowners to ‘pull the trigger’ on buying a new home, even if they may not have an immediate need to move. The move-up buyer represents a significant opportunity,” said Deborah Wahl, senior vice president and chief marketing officer for Pulte Homes.
The survey found the move-up buyer is typically a family with young or school-age children who already own a home. And, the demand for homes is likely to increase. Pulte finds 38 percent of millennials — those age 18 to 34 — who already own a home plan to buy a new home within two years. The number jumps to 58 percent within five years.
New home construction has an economic impact beyond the immediate neighborhood. The California Homebuilding Foundation in its report on the economic benefits of housing in California finds things have changed dramatically from the peak in construction.
“In 2005, permit levels topped 202,000 units, generating an economic impact of over $67.7 billion and nearly 487,000 jobs. Housing construction declined each year from 2005 until bottoming out in 2009 at $13.8 billion of output and 76,000 jobs,” cites the foundation report.
For 2011, the most recent reporting period, the foundation says new housing construction contributed $20.7 billion and supported nearly 123,000 jobs, a move in the right direction to be sure, with only more room to grow as demand increases.