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An endangered species

Housing downturn may have bottomed out, fewer homes being built, sold

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New single-family homes are an endangered species in San Diego County, the housing slowdown is soon to end and the future of home-improvement centers may be in large mixed-use developments.

These were only a few of the conclusions reached Tuesday during a Burnham-Moores Center for Real Estate forum at the University of San Diego.

Guy Asaro, Corky McMillin Cos. vice president of land development, said with land prices, lack of availability and other factors, the new single-family home is a threatened entity.

"They are going the way of the dodo bird," he said.

Asaro said that as recently as 2000, 10,000 new single-family homes a year were sold in the county. He said this figure had been cut in half by 2005 and dropped all the way down to 2,887 last year.

"Look out and the single-family number will go down to 1,000 before long," he said.

The Construction Industry Research Board (CIRB) said the number of single-family permits amounted to 4,727 in 2006, down 67.2 percent from 7,904 in 2005.

The changes have not only included a sharp reduction in the number of sales and permits, but also have spurred changes as to who is building these homes.

"The wild card is the public builder," Asaro said, emphasizing that a privately held homebuilder is often much better prepared to change direction when necessary. "The problem they have is they have an 'on' and 'off' switch, they don't have a dimmer switch."

He added that with few new homes being built, combined with the fact that most people expect their homes to be worth more in three years than today, the current downturn in the housing market "is but a blip on the radar screen."

Asaro said the market is already starting to turn.

"In the last 60 days, resale inventories have started to fall off," he said. "In January resales took off."

As for new residential units, Asaro said the key is bringing jurisdictions on board early in the process.

"If you can engage municipalities in infrastructure planning and get them to allow you to densify, you can deliver housing that's more affordable," he said.

Doug Duncan, the Mortgage Bankers Association of America's chief economist, also said the housing slowdown is a temporary phase, and should be a memory by the middle of this year.

"There were five years of significant growth in the housing market until 2006," he said.

Duncan said people have a larger amount of equity in their homes today than at any time in history. With a surplus of both new and existing condos, homeownership rates went up. He said that now, with many condos reverting back to apartments, the rental populations are once again on the rise.

Asieh Mansour, head of research for Rreef North America, whose firm has bought and sold millions of square feet of commercial developments in San Diego County, also said "the worst of the housing slowdown is over."

"The apartment sector saw some slowdown, but there are still a lot of investors," she said, before adding condo to apartment reversions have become a factor.

"It looks like a strong year for office, apartments and industrial, even though more office and industrial is in the pipeline," Mansour said. "I think retail has peaked, but that's because there just wasn't enough product in the market."

Michael Skiles, vice president of real estate for home-improvement retailer Lowe's Cos. Inc. (NYSE: LOW,) said San Diego County has one of the highest barriers to entry of any retail market in the country.

"There's a scarcity of coastal land, it's expensive, the infrastructure and entitlements are difficult," he said.

While the coast is only one part, Skiles said the inland areas are also difficult places to build because jurisdictions are placing more hurdles and adding more impact fees before they will le developers proceed.

"Riverside County has some of the highest fees we've seen," he said.

Skiles, whose firm has 1,325 stores in 49 states, said his business is fueled by housing starts -- housing starts that he hasn't seen a lot of lately.

"You can't go in with the expectation that housing starts are going to be there anymore," he said.

With land for new retail centers in short supply, Skiles said Lowe's has been moving increasingly into the realm of mixed-use development. One such project is a development along the Pico Boulevard Corridor in West Los Angeles. That project will have office and residential along with Lowe's and other retailers on the ground floor. The property is the site of a bus transit facility.

In south San Francisco, Lowe's went into surplus office space, and in Miami, the home-improvement retailer will be on the ground floor of a mixed-use development with several levels of retail and condo units, also with a Lowe's on the ground floor.

All agreed that land for such projects as these is expensive, but construction costs may be what breaks the camel's back. John Kratzer, JMI Realty president, said when combined with land costs, a 50 percent increase in construction costs within the past three years, makes projects very difficult to factor economically.

"We've walked away from about 90 percent of projects we've come across within the past year because of construction costs," Kratzer said.

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