The Housing Chronicles Blog: San Diego Economic Forecast

Wednesday, April 15, 2009

San Diego Economic Forecast

Miss the San Diego Economic Forecast Conference on Tuesday, April 14th? Fear not, as you can still download the presentations by Beacon Economics' Christopher Thornberg and Brad Kemp. As soon as the .pdf is available online, you can also download a copy of the nearly 100-page conference book which accompanied the presentations.

Here are some excerpts from the residential section, written by MetroIntelligence as part of our partnership with Beacon Economics:

San Diego County closely followed statewide trends during the recent boom-and-bust cycle, with total new home sales (including homes that are not part of major subdivisions) reaching a nadir of over 4,200 units by the second quarter of 2005. Since then, however, sales have fallen steeply, declining by as much as 73 percent between the fourth quarters of 2006 and 2008.

Sales have also dropped faster than most experts anticipated, falling to 752 homes by the final quarter of 2008, representing a decline of 61 percent from a year earlier and 21 percent from even the third quarter of 2008. Projections are for continued declines in 2009, with fewer than 2,500 annual new home sales at major subdivisions.New home prices in San Diego, however, took a slightly different path than new home prices in California from 2003 to 2008. Whereas new home prices in California continued to rise through the first quarter of 2006, in San Diego County prices experienced several drips and rebounds.

For example, according to DataQuick, after rising to nearly $488,000 at the end of 2005, median sales prices fell steadily to $415,000 in the beginning of 2007 before rising again to exceed $530,000 in the first quarter of 2008. Consequently, new home prices rose by 6 percent over the past year and have changed by little more than 1 percent between the third and fourth quarters of 2008.

According to new home data provider Hanley Wood Market Intelligence, new home prices at the subdivisions they track have also risen. Between the fourth quarters of 2007 and 2008, median minimum asking prices rose by 20 percent, to $560,000, although not all sectors performed the same. For example, median asking prices for condominiums rose by 52 percent, to $479,000 (a rise that probably stems from the conversion of more affordable developments to rental stock), while median asking prices for single-family homes fell by 2 percent, to $725,490, and prices for townhomes and duplexes fell by over 8 percent ,to $348,686.

At the same time, new home sales tracked by Hanley Wood fell by 78 percent during the fourth quarter, to just 197 homes, with condominium sales falling to almost zero. Sales of single-family homes closely tracked the overall market, showing a decline of 57 percent. The decline in net sales activity occurred in part because of the sharp rise in the cancellation rate, which more than doubled at 44 percent. For condominiums, the cancellation rate soared to 103 percent, indicating that nothing is moving. For all of 2008, cancellation rates rose from 13.6 percent to 18.6 percent, with cancellation rates for condominiums doubling from 14.5 percent to 30.2 percent

The absorption of new homes, or the rate at which new home communities sell their inventory, fell by nearly 70 percent, to just .31 units per month per development during the fourth quarter, although absorption rates for single-family homes remained slightly healthier at .47 sales per month. For all of 2008, monthly absorption rates fell by 46 percent, to .90 homes per project.

Even though builders are pulling back on new building permits, in some cases existing phases of active developments must be built out, especially for large attached projects which are built all at once. Consequently, although the number of new homes that are under construction but unsold fell by 36 percent, to 1,321 units by the end of 2008, the level of standing inventory rose by 6 percent, to 1,262 homes. Of these unsold units that have been completed, most are condominiums. At current net sales rates, these unsold homes would take 19 months to sell for standing inventory and 13 months for homes still under construction.

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