San Diego Housing 1Q15: The Market is Squeezed as Fewer Residents Can Afford New Home Product
- Our 1Q15 survey shows annual new home starts through 1Q15 down 21.3% from 1Q14 levels.
- The Average price of a new home stands at $850k in 1Q15, down 11.5% from 4Q14
- The difference between new and resale median prices is nearly $170,000 in San Diego County, with less than 23% of home buyers currently able to afford a new home.
May 2015 – Metrostudy’s 1Q15 survey of the San Diego County market shows annual new home starts decreased from 2,373 in 4Q14 to 2,188 in 1Q15, or down 7.8%. Year-over-year annual starts dropped 21.3% from 2,789 starts since 1Q14. Annual Closings increased from 2,235 in 4Q14 to 2,351 in 1Q15, or up approximately 5.2%. Since 4Q14, quarterly closings have increased from 467 to 576 or +23.3%.
Housing Inventory supply stands at 10.9 months, with levels increasing slightly from 2,103 lots in 4Q14 to 2,141 in 1Q15 lots (+1.8%). Vacant Developed Lot Inventory increased from 3,965 lots in 4Q14 to 4,040 lots in 1Q15, with monthly supply increasing from 20.1 months to 22.2 months during the same period.
“Starts by Price Range are broadly distributed across all major price ranges, with 26.1% of starts showing up above the $900,000 mark,” said Dennis Handler, Director of Metrostudy’s San Diego market. “Approximately 48% and 56% of housing inventory and VDL inventory falls below the $500k range, respectively. Single-Family Permit Activity through the first two months of 2015 totaled 687 permits, approximately 27% of total permits that were approved for all of 2014.”
Average resale price for single family detached homes increased from $618,556 in 4Q14 to $655,844 in 1Q15, or +6%. For all product types combined, the average resale price increased from $545,586 in 4Q14 to $582,139 in 1Q15 or +6.7%. New annual average price for single family detached decreased from $960,948 in 4Q14 to $849,869 in 1Q15 or -11.5%. For all product types combined, the average new price decreased from $758,998 in 4Q14 to $713,804 in 1Q15 or -6.0%.
In 1Q15, San Diego County experienced similar characteristics to the broader Southern California market, as resale and new home transactions dropped off nearly 9% and 46%, respectively. However, resale inventory remains fairly low at a 4.4-month supply while new home housing inventory rests closer to an 11-month level. Currently, housing inventory and Vacant Developed Lot monthly supply levels appear relatively stable so long as starts and closings can maintain a somewhat close correlation.
“Average prices for new and resale homes moved in opposite directions as resale prices trended up approximately 6% and new home prices dropped by just over 11% due primarily to affordability of resales versus new homes, as well as builders increasing sales of smaller and more affordable product,” said Handler. “Average days on market for resale homes remain in the 80-day range with no foreseeable change in this trend. Fundamentally, the economic conditions are favorably moving in the right direction due to consistent job growth and lower unemployment, low interest rates, and growing consumer confidence. Builders are addressing affordability by offering smaller new product options at the low-mid range of the buyer price spectrum, thus driving buyer curiosity and higher levels of traffic to new subdivisions.”
Affordability and number of qualified buyers are still primary factors that have a significant impact on the new home buyer market. The difference between new and resale median prices is nearly $170,000 in San Diego County, with less than 23% of home buyers currently able to afford a new home, which combined with limited product inventory at the lower-end of the price spectrum, has major implications on the home building industry through the balance of 2015. Alternatively, the rental market continues to benefit as rental rates are expected to remain stable with occupancy rates averaging 95% across Southern California.
Going forward, builders should expect San Diego County to continue along a fairly stable path. As it stands today, traffic at subdivisions is moderately improving, with a strong bump in activity in 2Q15, yet conversions are still struggling to stay above 1.5% and average weekly sales contracts are averaging less than one per week. Builders are competing for a very small buyer pool relative to the resale market, which is going to make effective marketing strategies and a strong understanding of buyer segmentation and preferences even more important in order to attract and convert new home buyer prospects.
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