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.
There are a number of these 1950s-style bungalows throughout Old Carlsbad, many of them occupied by their original owners (and kids who return). I’m not sure she was one of the originals, but the tax-assessed value is $68,049!
If you’d prefer to buy an older house in a prime location, your patience will most likely be tested.
Sellers tend to have low, or no, mortgage balance, and they’ll only move when they don’t have any other choice – plus they love to hold out on price.
The houses are usually dilapidated, because when they only paid $38,500 like they did on this street in the 1960’s, the thought of spending $15,000 for a new roof sounds outrageous. Heck, if it’s leaking, you can always buy a couple of extra buckets!
But if you can outlast the initial aggravations, you can end up with the home of your dreams on a quiet 10,000sf culdesac lot with panoramic ocean view and no HOA or Mello-Roos fees for about the same money as a tract house:
The SOHO home tour is tomorrow, Sunday March 27th – for more information, clickhere:
An unprecedented tour of the first homes built in the over 50-year career of Cliff May, known as the father of the American Ranch House.
This is a once in a lifetime opportunity to tour the very first homes built by Cliff May. The fabled homes, designed and built between 1932 and 1936, showcase the work of this Southern California Master Builder. The six homes on tour include the first five out of six he built (a sixth was lost) and one of the few Monterey style homes he built, a style that became popular by the late 1930’s.
Located in several communities, Talmadge Park, Presidio Hills, Point Loma, and Loma Portal, and representative of the California ranch style, these homes are the result of May’s experimental early hacienda style and his fascination with the early California adobe haciendas and ranchos. The visitor will be able to see firsthand the origins of the signature style of this master designer, builder, and architect for the first time.
One part of the housing market is experiencing a rebound that will probably continue even if the rest of the market remains sluggish: remodeling.
A recent report by the Joint Center for Housing Studies at Harvard University predicted that remodeling would rebound strongly this year after a three-year downturn. The center estimated growth of 9.1 percent for the first quarter and 12.1 percent for the second quarter. The predicted rate drops for the end of the year, but annual growth in remodeling is expected to be around 8 percent. In fact, the study found, the remodeling market held up far better than housing construction during the recession, with annual spending still close to $300 billion.
Kermit Baker, director of the remodeling futures program at the Joint Center for Housing Studies, said that remodeling nationwide was likely to remain strong as homeowners who put off maintenance and improvement projects began to spend more freely again. The study also found that the industry was beginning to benefit from the rehabilitation of foreclosed properties.
WHY THE REBOUND? It may seem counterintuitive that even as the housing market continues to suffer and the economic recovery feels tentative, the renovation market is picking up. But Mr. Baker pointed out that while home sales and construction were linked to mortgage rates, renovations were determined more by income levels and job security.
“Remodeling is not heavily financed,” he said. Instead, people are willing to spend cash, Mr. Baker said, because they have “a comfort level that the value of my home isn’t depreciating.”
He said during the peak years of 2006 and 2007, only 30 to 35 percent of renovations were financed through home equity loans or second mortgages. Last year, that number dropped to 15 to 20 percent.
He said there was more growth in smaller projects — energy-efficient windows and heating and air-conditioning systems — than in full-scale additions. Yet he said he expected continued growth across all types of renovations.
Historically, the Northeast and the Midwest have driven renovations because of older homes and higher personal income rates. That is happening this time around as well. But one difference is that the South and the West, where the house-building boom was centered, now have more homes that will need improvements. Foreclosures in these areas are also a factor in this.
“Houses are staying in the foreclosure process now for up to 500 days,” Mr. Baker said. “Owners are not putting money into maintaining the home because they’re ultimately going to be out on the street. A buyer who buys that home for 30 to 50 cents on the dollar or an investor who wants to flip it in nine months is going to have to put money in.”
One viable option, however, is the FHA 203(k) rehab mortgage.
This is the Federal Housing Administration’s rehabilitation mortgage. It has been a hot ticket for investors who are picking up distressed properties because it allows them to roll both the price of the house and the cost to make it habitable or marketable into a single loan. And some foreclosures are in woefully bad shape.
But regular buyers also can use the 203(k), especially if they want to do some work before moving in. And more important, current owners can use it as a refinancing tool to incorporate the cost of their home improvements into a brand-new first mortgage.
You’ll have to search for a lender in your neck of the woods who is familiar with the product. But once you find one, you’ll discover that the guidelines are extremely liberal.
For example, there is no limit on how much you can spend on your improvements. As long as the total loan amount does not exceed the FHA maximum ($697,500 in SD), you are good to go.
As long as the “as improved” appraised value of your property — that is, the value of the house plus the value of the improvements — does not exceed the maximum loan amount, almost anything goes. Only luxury items are verboten, says Jim Ragan, who manages the 203(k) program for Bank of America Home Loans.
“You can’t build Bobby Flay’s outdoor kitchen or a swimming pool,” Ragan says. “But other than that, practically anything else is permitted.”
Actually, the extent of the project can range from something relatively modest to a virtual reconstruction. The cost must exceed $5,000. But as long as the existing foundation remains in place, you can tear down the house and rebuild it if you so choose. Even such “soft” costs as inspection fees, architectural fees, closing costs and permits can be included.
The formula for how much you can borrow is fairly straightforward. The maximum loan amount (subject to the aforementioned ceilings) is 97.75% of the improved value of the property. If the appraiser says your project will add $125,000 in value to your $300,000 home, then you can borrow $415,438.
Better yet, there is no requirement for a reappraisal once the work is finished. Only a single up-front valuation is necessary.
Hat tip to Clearfund for sending this along, fromForbes.com:
Last weekend after Berkshire Hathaway released Warren Buffett’s annual letter, there were a flurry of articles and blog posts hanging off Warren’s every word. One part of his long letter that didn’t get a huge amount of ink was the section on Clayton homes, a big manufactured home company that Berkshire owns.
Here is Buffett’s excerpt on Clayton Homes:
At Clayton, we produced 23,343 homes, 47% of the industry’s total of 50,046. Contrast this to the peak year of 1998, when 372,843 homes were manufactured. (We then had an industry share of 8%.) Sales would have been terrible last year under any circumstances, but the financing problems I commented upon in the 2009 report continue to exacerbate the distress.
To explain: Home-financing policies of our government, expressed through the loans found acceptable by FHA, Freddie Mac and Fannie Mae, favor site-built homes and work to negate the price advantage that manufactured homes offer.
We finance more manufactured-home buyers than any other company. Our experience, therefore, should be instructive to those parties preparing to overhaul our country’s home-loan practices. Let’s take a look.
Clayton owns 200,804 mortgages that it originated. (It also has some mortgage portfolios that it purchased.) At the origination of these contracts, the average FICO score of our borrowers was 648, and 47% were 640 or below. Your banker will tell you that people with such scores are generally regarded as questionable credits.
Nevertheless, our portfolio has performed well during conditions of stress. Here’s our loss experience during the last five years for originated loans:
Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts in relation to their income. In addition, we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind.
If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did. Our approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income. This policy kept Clayton solvent and also kept buyers in their homes.
Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates. All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks. (The two best investments were wedding rings.) For the $31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come.
But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.
Are they nice enough that they deserve a new-house premium, or should there be a discount for being “not-stick-built”. I think the price that buyers would be willing to pay depends mostly on what’s happening around the immediate neighborhood – here’s a tour around the one on Magnolia:
Angie said that the module installation will be complete by Friday, but it’ll take a couple of months to button it up (plumbing, electrical, and all finishing touches):
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.
