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Housing market optimism means larger homes, Pardee exec says

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The housing cycle has taken an optimistic turn, which brings increased demand for design features and larger, higher priced homes.

Beth Fischer, division president of Pardee Homes’ San Diego region, discussed the cyclical nature of the housing market at the third annual Women in Real Estate Conference, hosted Wednesday by the Burnham-Moores Center for Real Estate at the University of San Diego.

Fischer found real estate by luck, she said, when she applied to a Fortune 500 company as an economics major and was placed in the real estate department. On her first day at the job, a senior vice president said he didn’t know why they hired women in real estate, because most deals were done in the men’s room. She replied that she would put in a speaker phone — and that was the end of him giving her any grief, she said.

A sense of humor is important when working in an industry dominated by men, Fischer said. Kris Michell, president and CEO of the Downtown San Diego Partnership, agreed. And to excel in the field, women should “make no excuses” for themselves, Fischer said.

Fischer discussed the market’s downturn and recent turnaround at the conference. The new-home market picked up in late 2012, Fischer said, with more buyers and little inventory. Prices experienced a significant recovery in 2013, and many waiting buyers jumped off the fence.

Market optimism is accompanied by interest in larger homes, Fischer said. According to Housing Intelligence, Fischer said the average size of newly sold homes in San Diego increased 33 percent in July from one year earlier. Buyers are expecting to get more features in homes — items that were optional in the downturn and are reappearing on the standards list, she said.

“Home design is always evolving,“ Fischer said. “We are constantly asking ourselves how we should adjust to homebuyers’ desires and how we should anticipate them.”

Those features include increased energy efficiency and floor plans that meet the needs of the aging population and multigenerational families. Security and technology are also “ever-increasing aspects of housing,” Fischer said. Community design also evolves, with today’s minimum requirements including walkability, centralized services and open space. Strong schools and functioning gathering spaces are also important.

During the downturn, pessimism led to softening prices, which led to more pessimism, “and the downward spiral goes on,” Fischer said. And the opposite is true for optimism. Home purchases are largely discretionary, she said, and thrive on market optimism.

“Just as bad news breeds pessimism that can wipe out homebuilding, optimism generates demand rapidly,” Fischer said.

Pardee eliminated some home features in favor of lower home prices to maximize the market during the downturn, Fischer said. A less expensive home appeals to a broader group of buyers, she said, and an options list was still provided for buyers willing to pay for those features. Pardee also found ways to phase projects by bidding and rebidding smaller construction phases to bring construction costs down and better match receipts to payments, Fischer said.

“All the while we safeguarded our core business — our homebuilding. Virtually everything else was for sale,” Fischer said, adding that the company sold excess office furniture on Craigslist and sold open space to government agencies.

The most recent downturn in the housing cycle challenged Pardee Homes and forced it to lay off 75 percent of its staff, but it stayed conservative and will take lessons learned into the next inevitable downward cycle. The employees who stayed during the downturn were those who excelled at teamwork and those who could adjust and weren’t going to say, “That’s not in my job description,” Fischer said.

In 2006, Pardee had a record number of home sales and lot sales to other builders, Fischer said. It invested millions in new land and preparing land for homes. Soon, demand in the market started to slow, and Pardee slowed its production and construction starts.

In 2009, Fischer’s division was selling slightly more than 20 percent of the volume sold the year prior. It had its first layoff in October 2006, and in 2009 it laid off 75 percent of its staff, she said.

“Not many companies can survive a sudden loss of 80 percent of the market,” Fischer said.

To survive, Pardee identified other sources of income and combined and outsourced jobs “when volume didn’t justify the staff,” Fischer said. Her division moved its offices from a Class A building to construction trailers. She expects to move back to a Class A building soon because Pardee will be building on the land where the trailers sit.

“Nearly every component of overhead was scrubbed, and scrubbed again and again,” Fischer said.

Going forward, Fischer assessed the demand for the product. She referenced the National Association of Realtors, which found that 80 percent of the American population prefers a single-family home and 70 percent live in one. That 10 percent represents 30 million people, Fischer said, which could equate to about 12.5 million houses needed.

It’s estimated that there will be about 15,000 households created each year for the next three years, Fischer said. Total permits for single-family and multifamily homes are projected to average about two-thirds of that. As long as demand outpaces supply, home prices will continue to rise.

Fischer said she expects interest rates to tick up, based on the Federal Reserve’s actions, and home prices will continue to increase, but at a slower rate. San Diego’s “sunshine tax” means household incomes will not keep pace with housing prices. Fischer expects there to be more competitive bidding for land and companies that hold land.

Businesses that bought up single-family homes did so when the market needed someone to buy them, Fischer said. It’s not in their interest to flood the market with those single-family homes that are owned as rentals, she said, and said it will be done “logically and gradually” to not cause a ripple effect, although there will still be an effect. She said the same is probably true for any houses that banks own, and that both groups will be meted out at a reasonable rate.

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