SFR – Single Family Residences up 29% YOY – (year on year)

Multi-Family Residences up 100% YOY

http://www.sandiegouniontribune.com/news/2015/jul/02/housing-county-permits/

By Roger Showley | 5:23 p.m. July 2, 2015

San Diego County housing permits rose 70.4 percent through May and could top the 10,000 mark for the first time since 2006, according to the Construction Industry Research Board.

“It’s positive but it could be even better,” said economist Alan Gin at the University of San Diego’s Burnham-Moores Center for Real Estate.

For the first five months of the year, local jurisdictions issued permits for 4,491 homes, compared with a total 2,635 for the same period in 2014.

If the 2015 monthly production rate repeats 2014’s level, the total could approach 11,300 permits by year’s end. In 2006, the year before the recession hit, total production stood at 10,777. Since then it dropped as low as 2,990 in 2009. Last year it was 6,586.

But that still not be enough to meet demand, Gin said, especially since the limited supply is leading to higher costs for both buying and renting.

“We’ve got to have building return to the 15,000 to 20,000 level to really have an impact as far as prices and rents are concerned,” he said. “Given the land and labor shortages, I just don’t see that happening in the near future.”

He said the permits for single-family homes should be much higher, based on past trends. So far this year, they represent 31.9 percent of all permits, down from 34.3 percent for 2014 and 44.1 percent in 2006. Apartments and condos represent the balance.

To combat rising prices, local governments are increasing fees and requirements to generate more affordable housing, but Gin said the quantity produced is far less than needed.

Meanwhile, buying might get even costlier because of rising mortgage interest rates. The Freddie Mac weekly mortgage survey placed the average 30-year, fixed-rate loan rate at 4.08 percent Thursday. That’s the highest since 4.12 percent reported in October.

Gin said the increase probably anticipates a rise in short-term rates expected from the Federal Reserve in coming months. But he said a quarter or half-percent increase from current levels should not choke off the housing recovery. And if rates rise substantially, buyers could always switch to lower-cost adjustable-rate mortgages.

Several trends are at work, Gin said:

• Prices of new single-family homes frequently start at $800,000, $300,000 more than the median price of resale houses sold in May and far beyond the pocket book of most would-be buyers.
• Incomes of middle-income buyers are relatively stagnant, while they have increased for top earners, so that builders are appealing to the top end of the market.
• First-time buyers, even if they earn enough to buy a starter condo, often opt to rent because of concern that prices might fall or they might have to move for job reasons.
• Apartment construction is soaring but not fast enough to meet rising demand. The latest countywide vacancy rate stood at 4.1 percent, when 5 percent is considered the point at which supply balances demand.
• Land is scarce for new suburban single-family subdivision tracts and regulations make it difficult to find infill spots for either multifamily or single-family development.
• Construction jobs have not returned to pre-recession levels and some contractors report difficulty in filling shortages, a situation that leads to higher labor costs and higher prices.

Russ Valone, president of MarketPointe Realty Advisors, said the new permit figures indicate a strengthening market and reflect builder optimism. The resale market also is doing well, even though inventory levels remain low and sales are relatively flat. But he attributed that to investors exiting the market and owner-occupants dominating.

“That sort of gives you strength in that market,” he said.

Still, Valone said local governments could help respond to rising housing demand by speeding up project review and permit processing and allowing more infill development.

If such steps are not taken, he predicted a return to San Diegans buying in south Riverside County, where prices are lower and new affordable single-family homes are more available. If that trend of the early 2000s returns, San Diego could lose jobs to that county as well, he warned.

Peter Dennehy, senior vice president at the Meyers Research, said despite the high prices of the few single-family homes being built, sales have been brisk at many projects. He cited Standard Pacific’s Estates at Del Sur in Black Mountain Ranch north of state Route 56, where about 40 homes have sold for an average $2 million apiece since January.

“There’s demand for that product,” he said.

And some millennials — “elite millennials” he called them — are able and eager to buy: lawyers, high-tech workers and “creatives.”

“I think there are some millennials better placed to buy than others,” he said.

San Diego County building permits through May 2015