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Conversations 2011

Real estate analyst: Recovery under way, but slow

The economic recovery is a tortoise, not a hare, according to Tim Sullivan, principal of John Burns Real Estate Consulting.

And those who remember the conclusion of Aesop’s fable wouldn’t want it any other way.

A collection of current indicators, and a comparison to historical regional recoveries, show a market that’s unmistakably improving and can be expected to gain considerable momentum in the coming years, Sullivan told an audience of Realtors at Conversations 2011, a conference jointly presented by the North San Diego County Association of Realtors and California State University San Marcos.

He said the national housing recovery is beginning to resemble early-1990s recoveries in Houston and Southern California.

There’s beginning to be sustained jobs growth in the private sector. Thirty five metro areas have either flat or improving housing values, eliminating fear among would-be buyers and sellers. Small business CEOs are as confident in the economy now as they were in 2006. Housing affordability compared to median incomes is at its best mark in 50 years. Personal savings rates are at their highest levels in years, paving the way for down payments at some point.

“These are things to hang your hat on,” Sullivan said.

Houston overbuilt new housing in the 1980s. This lead to a steep drop in housing prices, which was followed by a long, slow recovery period. Southern California followed a similar trend in the late '80s, he said. The region suffered through a prolonged period of slow growth, with a recovery that seemed to never arrive through the '90s, before suddenly the 2000s arrived, and the market had returned.

Houston and Southern California’s recent histories tell the story of the national recovery, according to Sullivan.

In San Diego, he said what’s good and bad for the market are one in the same.

The county has a restricted land supply, and local permitting processes make it difficult to build. Both of these factors put upward pressure on prices, which will spur the region to an earlier recovery to other areas.

But, he said, it’s important to remember the general recovery timeline. Job growth leads to the filling of existing housing vacancies. Once demand exceeds supply, rental rates and housing values rise. Lastly, new home construction returns to normal.

San Diego created 55,000 jobs per year in the 1990s, Sullivan said.

By 2014, his company projects the county will be adding between 22,000 and 23,000 jobs.

There’s a direct correlation between the loss of low-paying jobs from housing construction and the discrepancy between those yearly job growth numbers, Sullivan said.

Echoing predictions from other forecasters and analysts, he said new home construction in San Diego would increasingly come in the form of high-density infill and redevelopment projects.

Lastly, he said the difference in costs between renting and owning in San Diego is closer than ever, which will begin to bring renters into the market.

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Sullivan Group Real Estate Advisors

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Conversations 2011: Tim Sullivan

March 4, 2011 -- Executive Editor George Chamberlin speaks with Tim Sullivan, principal of John Burns Real Estate Consulting, at Conversations 2011 about recovery in the market.