San Diego County seems to be in the best shape in California and in better shape than most around the United States when it comes to recovering from the recession in terms of residential construction.
Jonathan Smoke, executive director of research for Hanley Wood LLC, gave a forecast of new home building in San Diego County at a Building Industry Association breakfast program Thursday and said San Diego County is closer to recovery based on data and research.
Smoke, a builder-turned-researcher, first mentions that San Diego is set to recover sooner rather than later since the county was one of the first infected by foreclosures, which led to people renting instead of owning and current supply versus demand data.
“Homeownership declined first in San Diego,” said Smoke, to a room full of homebuilders. "Expect San Diego to recover first in California because it got into this (mess) first.”
Smoke said to have avoided the vacancy of almost no new home construction the past few years, builders should have stopped building in 2006, based on supply versus demand analysis at that time. He added that supply of homes for sale was greater than demand in 2008 and 2009, but that in 2010 supply and demand for home sales and homeowners has started to level off.
“San Diego banks outsold builders five-to-one in 2010,” said Smoke, adding that he expects one more year of foreclosures, and then it will take 18 months for banks to sell them before builders are out selling again. “You, followed by San Jose, are the best home-buyer markets in California right now.”
Smoke added that the bright spots in San Diego County for homebuilders right now are Carlsbad and the city of San Diego, and traditionally the coastal region and the North County inland area are the most stable areas.
Smoke finished his discussion by telling new homebuilders in the audience that they should pay attention to age demographic trends, especially to the baby boomers now because the younger generation that does buy homes tends to buy used or foreclosed homes.
“Baby boomers are retiring at an older age than their predecessors,” Smoke said. “You need to find out what will they do? Will they buy a new home? Remodel their current home? Retire in a rest home? Will they move out of San Diego? Probably not, but baby boomers have different tendencies than their predecessors.”
Smoke said to avoid the same mistakes as before, homebuilders cannot go off their gut instinct. It is not a winning formula anymore when it comes to knowing where and when to build.
“Construction industry officials need to understand why one community is better than another so builders can make better business decisions,” Smoke said.
“I hear builders say, ‘I know a good piece of dirt when I see one,’” said Smoke, comparing it to the quote "I know talent when I see it" in the book “Money Ball.” He added that builders need to go away from gut instincts and follow leads based on research and data to tap new market opportunities.