Through four months of 2011, developers have placed a bet that there’s demand for new housing in a market dominated by severely discounted distressed properties.
While foreclosures and short sales continue to depress the housing market, builders have begun securing housing permits at the fastest rate since 2007 on the assumption that higher-priced homes that present less risk can coexist with the distressed properties that banks are increasingly releasing to the market.
Builders secured permits for 716 housing units in April, an annual increase of 120 percent and a monthly increase of 96 percent, according to numbers released by the Construction Industry Research Board (CIRB).
“The chance the industry is taking is that the lack of existing new product will itself create demand,” said Borre Winckel, president of the Building Industry Association of San Diego (SD-BIA).
It’s the highest monthly total since June 2008, when builders pulled permits for 986 units, and the highest April total since the 1,270 in 2005, at the height of the housing boom.
Home building activity in 2009 reached an all-time low in the county, with 2,990 total permits issued. Last year’s permit total increased only slightly, to 3,346.
The county needs to issue permits for the construction of 15,000 homes per year to keep up with population growth, according to Winckel
“The true measure of permit increases is a statistical false indicator, because the percentage numbers are so big, but off of such low volume,” he said.
Demand for new housing has been low in recent years due to the sustained presence of foreclosed homes available at substantial discounts compared to traditional sales.
But buyers have complained of an arduous process of buying those homes — whether as an REO or through a short sale — in which banks need documents submitted multiple times and often reject a sale after months of negotiation.
Distressed properties also carry discounts for a distinct reason: they’re in poor shape and can require expensive repairs just to return to a livable status.
Builders are therefore banking on buyers’ desire for a new home that carries less risk and a less stressful sales process — especially with the current pool of new homes at an all-time low, according to Winckel.
“It’s a cautious play by the major homebuilders who happen to have the cash to wage this waiting game,” he said.
Through the first four months of the year, county builders have secured permits to build 2,225 homes. That’s the highest total at this time of the year since 2007, when builders had pulled 3,094 permits, and is a 93 percent increase over the year-ago period, when 1,152 permits had been issued.
Of the 716 permits approved last month, 520 were for the construction of multifamily units, bringing the year-to-date total to 1,499.
There were 1,092 multifamily permits approved in all of 2010.