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Imperial County housing outlook won't improve until job growth does, experts say

Once fertile ground for the housing industry, Imperial County's home sales have slipped considerably during recent times.

And it isn't expected to pick up until job growth in the area improves, according to industry experts.

"Imperial Valley and Coachella are pretty much mirroring the slowdown we're seeing in the rest of the state," said Fred Bell, CEO of the Building Industry Association's desert chapter.

In September 2005, the area's housing market was robust. The number of actively selling projects stood at 24 with the median absorption rate rising to 12 units a month.

Residential building permits had also increased to 2,974 in 2005 (a monthly average of 248) from 1,211 in 2003 (an average of just over 100 a month).

"Buyers had a lot more options than they had before," said Adam McAbee, vice president of Sullivan Group Real Estate Advisors. "Also, there were years of continued job growth with little building activity."

In May 2006, the number of actively selling projects increased to 26, but the median monthly absorption rate dipped to 5.5 units. By September, the number of projects increased to 33 with the absorption rate slipping to 3.8.

In April 2007, active projects were at 38 with the overall absorption rate at 2.9 a month.

"The market's slowed," McAbee said. "They may have burned through most of that pent-up demand from long ago.

"Supply may have gotten ahead of demand and so did pricing."

Part of the reason for the slide, according to Robert Martinez of MarketPointe Realty Advisors, is that some of the homes got too big and too expensive.

The median base price among actively selling projects is currently $312,445, jumping more than $50,000 from $259,990 in 2005.

"You've got a lot of price-sensitive buyers out there," Martinez said. "When homes get bigger, prices tend to follow and it's pushing a lot of potential buyers away when you get bigger."

The subprime market also has adversely affected the Imperial County housing market.

"The buyers are out there but their credit is not good or they're having issues getting qualified," McAbee said.

The BIA's Bell agreed.

"The subprime lending vehicles have gone away, and so we're back to a more traditional mortgage environment," he said. "It's put a great deal of pressure on the market.

With the market cooling, we're seeing some activity on the bottom end of market."

And the industry has struggled because there hasn't been much job growth lately.

Before the Imperial Valley mall opened, the project was being touted as one that would bring a number of jobs. Those jobs, however, have been mostly entry-level retail jobs.

"It didn't do a whole lot for bringing the economy to the next level," said MarketPointe's Martinez.

During the past year, the area has struggled with unemployment, El Centro in particular. In the latest statistics released by the U.S. Labor Department, El Centro had the nation's highest unemployment rate, 16.6 percent, compared to 14.7 percent in June 2006. Its 1.9 percent increase in unemployment rate also was the highest in the country.

"The key for Imperial County to get back on the bike, so to speak, is going to be jobs," Martinez continued. "There's a number of big job generator projects that are in the planning stages that would bring some jobs to area."

Potential opportunities, he said, could come from a planned power plant in the northern section of the valley, an industrial complex between Brawley and Imperial, and the continued expansion of the maquiladora program.

While based in Mexico, the maquiladora program should help Imperial County because many of the workers will buy homes and live in California while working in Mexico.

Another boost for the long term could come from a large industrial park planned for the Mexican border, which is being funded by ING. The high-tech, maquiladora-type project should have a positive impact on the market, according to Martinez.

A proposed casino near Calexico also could pump approximately 200,000 jobs into the area.

In the next three to four years, several smaller projects also could help fill the job void, according to Tom Topuzes, chairman of the Imperial Valley Economic Development Corp. The Mesquite Regional Landfill, east of Brawley, will employ 250 and could be operational by 2009; the Mesquite Lake Industrial Park is a large park that's receiving interest from companies in China and around California; and the Brawley meat processing plant was recently purchased by National Beef and has been targeted for expansion.

"A few years ago, people were portending that Imperial Valley could be the next Temecula, a bedroom community for San Diego," Martinez said. "But it's a heck of a long drive.

"There was also talk about development oozing down from the northeastern Riverside area, but it's really going be jobs that pick it back up. That community is not going to continue to be just agriculturally based."

Another key to increasing home sales is, predictably, price.

Real estate brokers in the region say getting housing prices close to $200,000 is imperative. Builders are looking at existing holdings as well and considering rezoning their lots to increase density.

"Density translates to affordability," the Sullivan Group's McAbee said. "The key for builders is who can offer the best value, and that translates into lowest price."

Incentives are constantly being offered, with the latest being $12,000 per product. And some builders are adding attached product lines.

The big builders in the area are D.R. Horton (NYSE: DHI) and Pulte Homes. In the second quarter of this year, each opened 38 detached home escrows. K.B. Homes (NYSE: KBH), Centex (NYSE: CTX), McMillin and K. Hovnanian (NYSE: HOV) also are building in Imperial County.

"What you had was when (the area) did really well -- in '05-'06, maybe '04-'05 -- you were seeing satisfaction of pent-up demand," Martinez said. "You had people there and they needed housing and builders came in and started to satisfy that. The building started to outpace the population increase."

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