Demand for new homes in San Diego County continues to outpace supply as the housing industry struggles to keep up with population and economic growth.
The San Diego County economy reported solid job growth through the first quarter, producing 20,000 jobs during the 12 months ending in March 2005, said Steve Johnson, director of Metrostudy's San Diego County division.
Annual job gains in Los Angeles County, Orange County, the Inland Empire (Riverside County and San Bernardino County) and San Diego County totaled 111,500. With an unemployment rate of only 4.3 percent, San Diego outshines the Southern California unemployment rate (5.0 percent), the statewide rate (5.7 percent) and the national rate (5.4 percent), said Johnson.
A growing local economy, coupled with solid growth in the regional economy, will continue to support significant housing growth in the near term, said Johnson.
Burgeoning population growth and a diverse economy provide a strong impetus for housing throughout San Diego County, which recorded 3,533 single-family starts during the first quarter of 2005, an increase of 5 percent over the fourth quarter of 2004, but a significant decline of 16 percent compared to the first quarter of 2004, when many attached products initially opened. The annual starts rate was 14,009 units.
The highest volume of starts is within the $425,000 to $550,000 price range, which represents the peak of the price range bell curve, said Johnson. The second most dominant segment for housing starts is the $325,000 to $425,000 range.
"The missing component in the market is affordable housing priced below $300,000," Johnson said. "This market weakness is exacerbated by the cost of land for development. The recent success of multi-family conversion to for-sale units highlights the tremendous opportunity in the market for affordable product."
Single-family quarterly closings totaled 3,169 units, a decline of 8.0 percent compared to the fourth quarter of 2004, but, more significantly, a 10.0 percent increase over the first quarter of 2004. The annual closings rate was 12,979 units.
Starts and closings by county indicate that the I-15 Corridor, which includes San Diego and the Inland Empire (Riverside County and San Bernardino County), maintained its dominant position, capturing 75 percent of the Southern California housing market, said Johnson.
Single-family inventory, which is composed of units under construction, finished vacant units and model homes, totaled 14,346 units at the end of the first quarter, a 13.3-month supply.
Inventory by market area throughout San Diego remains undersupplied relative to population growth.
"Conservative lending practices and a universal merchant marketing/retail approach to new home production drastically limits speculative building in this region," said Johnson. "As a result, the overwhelming majority of inventory units are built to contract. This circumstance has insulated the market from the risk of carrying inventory. However, the market also has changed in the last year, with thousands of condo conversion units moving through the sales process and inflating the level of finished vacant inventory, most of which have been sold and are merely awaiting the close of escrow."
Vacant developed lot inventory was 5,951 units. Based on the annual starts rate, this level of inventory represents a 5.1-month supply, said Johnson.
The San Diego County real estate market is a microcosm of the new home industry in Southern California, said Johnson. The high cost of single-family housing has accelerated the development of the condominium conversion market, which recorded 3,000 sales in 2004. The median price of a resale single-family detached home rose 12.0 percent over the past year to $477,000.
Increasing inventory in the resale market should provide a more level playing field as sellers experience fewer multiple offers over the next few months. The attached market - a combination of conversion, high-rise and low-rise product- is the dominant housing market in San Diego County.