San Diego’s housing landscape features investors renting out traditionally owner-occupied homes and a lack of land supply to meet the demand, according to real estate professionals who spoke at the Burnham-Moores’ 14th annual Residential Real Estate Conference on Thursday.
Alan Nevin, director of economic and market research at Xpera Group, said 25 percent of homes and 23 percent of condos are owned by investors, further constraining the for-sale inventory.
Investors who bought from 2007 to 2009 are now seeing a profit. “The scary part” is that there are more than 150,000 homes and condos being rented, Nevin said, and he doesn’t know where those people will go when the investors decide to sell to owner-occupied buyers.
“I mathematically cannot figure out where these people are going to go,” Nevin said, adding that it’s a “crisis in the making.”
John Olinski, executive vice president at OneWest Bank, explained that big institutional money temporarily converted single-family ownership to rentals. They are not permanent holders and have had “substantial quick gains,” but Olinski said the institutional investors probably won’t dump those properties onto the market.
Nathan Moeder, principal at The London Group, said there needs to be between 10,000 and 12,000 building permits per year in a normal market. There are only about 5,000 permits per year, and San Diego is “out of land,” Moeder said.
He added that it’s important for local governments to work together to identify where the job centers are and where houses need to be for the people working at those jobs.
Looking forward to 2014, Moeder anticipates the market will temporarily “freak out” as a result of tapering, but it will adjust. In the long term, there’s upward pressure on prices because there is no more land, he said.
An increase in interest rates may cause buyers to “jump to buy houses,” Nevin said, adding that he doesn’t see “small incremental rises in interest rates having an effect on demand.”
Nevin said there are several boom and bust states, California among them, and he expects another round of that cycle.
Stephen Doyle, president of Sandy Point Properties, said 2014 will be a time to “catch your breath,” “refocus” and evaluate the overall business plan.
He said this is going to be a “different world as far as who is building in San Diego and it’s going to be a different world as far as what they’re building.”
He has spent 35 years working in land development and in master-plan communities. In the past, he worked on projects with 1,500 to 2,000 small units; today he’s looking at projects with eight units.
“I refocused my efforts to projects in areas that need redevelopment in communities that want redevelopment,” Doyle said. He’s looking in areas with opportunities for density and is buying single family houses, tearing them down and putting in apartments.
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