It’s a Builder’s Market as the Surge in House Hunting Continues Apace
In Southern California, where there are far more house hunters than houses, builders with homes to sell can virtually pick a number--and someone will pay it.
For properties that sell for less than $500,000, builders have too many potential buyers, no matter how high they raise the prices, said Jeff Meyers, who heads industry consulting firm Meyers Group.
“Builders can’t find the top right now,” he said.
Prices have spiraled upward so quickly that some analysts believe if costs go much higher, the percentage of people who can afford new homes could plunge and break the market’s momentum. Builders are planning less-costly units farther inland to better balance their risks, even as the markets sizzle in Los Angeles and Orange counties.
At the Meridian, an oceanfront condominium complex in Long Beach, prices for a popular floor plan grew to $436,000 in March, up from $316,000 a year ago, a 38% increase.
At Twilight Vistas, a community of single-family homes in the Santa Clarita Valley, costs surged 37% for some models to $550,000 from $402,000 a year earlier.
And at the Rose Maria Condominiums in Placentia, one floor plan climbed to $189,000 from $149,000 a year earlier, a 27% increase.
“We don’t see these kinds of year-over-year price increases anywhere else in the country,” said Meyers, whose Irvine-based firm compiled noteworthy examples of price hikes for The Times.
Typically, a 5% to 10% annual increase is considered robust. But prices across most of Southern California have shot up beyond that range, rising at a pace analysts haven’t seen since the late 1980s.
‘No Risk of Collapse’
Near the end of the previous boom, a sudden burst of construction bloated the housing inventory as the business climate abruptly crumbled amid mounting job losses that reduced the number of potential buyers.
Virtually no chance exists today for a similar surge in construction. With limited inventory and tightly controlled lending for new projects, the industry runs “no risk of collapse” even if the economy stumbles, Economy.com analyst Steven Cochrane wrote in a recent report on the state.
The tight market is leading to a price surge in Northern California, a market that is quickly recovering from the dot-com bust. The turnaround, coupled with soaring demand in the Southland, is padding bottom lines of builders in the state as orders rise.
A stock index of the nation’s biggest home builders posted a 52-week high earlier this month and remains more than 56% ahead of a year ago.
At Standard Pacific Corp., one of the nation’s largest builders, the company logged record results through the first four months of the year, largely because of the California market.
In April, statewide orders grew 30% compared with 2001, and the number of canceled orders was cut nearly in half from a year earlier.
Industry giant Richmond American Homes reported its strongest April on record as orders jumped in the Southland by 61%.
“In the last three months, demand has become steadily better each month,” said Gary Reece, chief financial officer at MDC Holdings Inc., the builder’s Denver-based parent company.
Sales Ahead of Projections
Other builders have had similar experiences. The first four phases of a Mira Loma project by K. Hovnanian Cos. of California Inc. sold out before consumers even saw a model home. In Irvine, the company has 10 buyers waiting for each available house.
With such interest, there’s no need to advertise, said Maggie McIntee, the firm’s director of marketing in Irvine. Sales are 40% to 50% ahead of projections, she added.
KB Home in recent months fielded hundreds of inquires at an Upland site weeks before model homes or a sales office had been completed. Last month, the company equipped a recreational vehicle as a temporary office to help handle the crowds.
“These are the kinds of things over my 30 years in the business that have rarely occurred before,” said Bruce Karatz, chairman of Los Angeles-based KB Home, one of the nation’s largest builders.
John Laing Homes recently put up about 100 houses for sale in California, mostly in the Southland, and each one sold within hours. Price increases averaging 15% to 20% from a year earlier have not dimmed interest among buyers, said H. Lawrence Webb, president of WL Homes, the privately held parent company of John Laing.
“Today,” he said, “the demand clearly has surpassed our ability to construct homes.”
About a one-month inventory of new single-family homes, condominiums and townhomes exists at the current selling pace in Southern California, Meyers Group said. The supply, which includes finished units as well as those that will be completed within the next 90 days, is the lowest since figures were first kept in 1988.
In comparison, the nation has a 4 1/2-month supply of new homes, the latest figures from the federal government show.
The nationwide supply is considered low and remains a key factor in pushing U.S. housing prices to record highs. Boston, Washington and New York are among the areas seeing the sharpest price increases.
Housing has been under-built in California for years, said analysts who estimated that the deficit has been growing by 55,000 to 100,000 units annually. Builders blame scant production on a number of factors.
They said a lack of suitable lots in Southern California has limited their ability to produce new housing, and they cited planning policies that favor development of retail stores over houses. Strict rules can require years to determine whether housing will adversely affect wildlife or the environment. And their proposals often face stiff opposition from homeowners who don’t want to see the housing densities in their areas increase.
But the tight market has allowed builders to boost prices, especially on model homes and other units with such premium features as great views or corner lots.
At the Regatta, a condominium high-rise in Marina del Rey, the base price for a particular floor plan in March was $1.1 million, escalating 86% from $619,000 a year earlier. In Mulholland Park, a gated enclave in Calabasas, some models costing about $2.2 million had been going for about $1.35 million a year ago, the report by Meyers Group showed.
In the Colony at Bridgeport, certain units at the Valencia development were marked up to $429,000 from $268,000 a year ago, a 60% increase. And at Skyview, a single-family home development in the Santa Clarita Valley, prices for some styles were going for $564,000, a 54% increase from $366,000 a year ago.
Overall, Southern California, which has routinely ranked in surveys as the most under-built region nationwide for new homes, registered sharply higher prices in the first quarter compared with last year.
Buyers Likely to Be Pushed Inland
Median prices on single-family homes in Orange County are the first in the region to rise above $500,000, according to Meyers Group. Such steep gains are likely to cause more people to look for cheaper housing in Riverside and San Bernardino counties, Meyers said.
Some builders are trying to put up more housing in the Inland Empire and lower-cost attached units in job-rich areas such as Irvine to limit their exposure to a market that might stall.
Still, analysts see ample reasons for home builders to remain upbeat for now.
“I don’t think the price run is over by any means, particularly in Southern California,” said Michael Carliner, an economist at the National Assn. of Homebuilders, a Washington trade group. “There is still more demand than supply.”
