In terms of a housing recovery, San Diego is moving like a swift tortoise but not quite a hare, the president of Meyers LLC said at Conversations 2013, hosted by the North San Diego County Association of Realtors.
“We are truly in a recovery,” Timothy Sullivan added. “The race has begun and I think we can say that basically the tortoise has jumped on the hare’s back, slowing him down. But we’re moving in the right direction and certainly moving faster than the tortoise would go.”
The good news, Sullivan said, is job growth, a lack of supply and great quality of life. But the bad news is affordability; home prices are too high relative to income and it’s expensive to develop.
While the economy and housing market are improving and “everything is moving in the right direction,” Sullivan said there are external challenges, such as restrictions on land use and the cost of development. Also, on a macro basis, sequestration cuts took effect Friday, the date of the event. Economic fundamentals, such as employment and consumer confidence, are improving, he said.
“We will not have a full recovery without housing participating,” Sullivan said. “For us to really have meaningful impact on the GDP of our country and the GDMP of our region, we’re going to have to see activity more than double from where we are now.”
There are 150,000 unsold homes, the lowest Sullivan said he’s seen in four years. There were 5,500 residential building permits in 2012 and Sullivan expects 2013 to record a little more than 6,000.
“Based on demand, we should be more than double that,” Sullivan said.
There are 250,000 people expected to enter the marker over the next five years and 90,000 households are forecast to be created. “Where are we going to put them?” Sullivan asked. San Diego “burned through” its excess supply and now it’s difficult to find any property, he said.
“We are not anywhere close to replacing the housing that we need,” Sullivan said. “The housing that we’re bringing in is almost replacement housing. It’s not there for our new additions – for the people who want to move in here.”
The lot inventory is also changing, he said. Lots that were once B locations are now A’s, and C locations are now B’s. In San Diego, Sullivan said a B location could be Murrieta and a C location could be close to the desert. The available supply of lots is in the outlying areas, he said, and the best locations are gone.
The new consumer is concerned about a lack of supply and housing is being pursued again, Sullivan said. The active adult, who Sullivan said is the “ultimate discretionary buyer,” is buying again and single family detached is still necessary.
Job growth leads to housing vacancies filled, and then demand exceeds supply – which is where San Diego is, Sullivan said. Job growth is the single most important thing, he said, because without a job, people won’t buy a home. Next, rents and home prices rise, and finally construction returns to normal, and that’s a sign that the market has normalized.
“In San Diego, I don’t think we’ll ever see a normal market again,” Sullivan said.
Sullivan suggested that the real estate professionals in the audience know their consumer – the consumer’s wants, needs and what they will pay for. He advised them to monitor macro trends, which he called “the wind in the sale.”
“If we can continue our economic growth, you will see more activity in sales,” Sullivan said.
Sullivan forecast a 33 percent growth in new home sales to 487,000, and to 629,000 in 2014. He said the improving economy will help move people who have been sitting on the fence about selling a home.
Sullivan said the economy needs three things for a recovery: jobs, filled vacancies and confidence. He said San Diego has job growth and filled vacancies but said his confidence is “shaking.” “I don’t see clearly what’s going to happen this next year with sequestration and other challenges.”