REGION: Home building permits hit all-time low
Construction indicator drops 64 percent in first quarter.
By ZACH FOX - Staff Writer | ∞
Home builders requested the fewest number of permits on record during the first quarter of the year, signaling that new residential construction in San Diego County has practically halted.
The number of permits fell to 926 units in the first quarter, down 63.6 percent from the same period last year, according to a report by the Construction Industry Research Board, a nonprofit based in Burbank. The board does not track North County-specific figures.
It was the lowest first quarter number since the board started recording data in 1988, before the county's last housing recession in the early 1990s. March's figures were by far the worst this year, with builders requesting permits for just 193 units, an 83.7 percent drop-off from a year ago.
Permits are generally considered a forward-looking assessment of the housing market because it takes builders up to a year or two to finish construction after first requesting the permit.
During the previous housing recession in the early '90s, home sales began to recover about one year after building permits hit a low point. Prices, however, did not recover for four years.
Housing analysts said the record low figures were expected. Weakness in the multifamily sector was profound: In March, builders pulled permits for just eight condominium or apartment units.
"Man, that's bad. Eight," said Mark Connal, sales director for Michael Crews Development, an Escondido builder. "It's shocking, but it doesn't surprise me. It's amazing, though, that there's so few ---- that in a county with 3 million people there's only eight units in March."
Foreclosures doubled in the first quarter of this year compared to the same three months in 2007, while North County home sales were down 26.6 percent during the first quarter, according to real estate agency reports.
Home builders said they are waiting for sales to pick up and for inventory ---- measured as the amount of time it would take to sell off all homes for sale ---- to drop before they start looking at new construction.
Based on first-quarter sales and active listings, North County's inventory stood at more than 12 months of supply. Some builders said they are waiting for inventory to drop to six or seven months before breaking ground on new projects.
"It makes sense to drag your feet if you're a builder because you're competing directly with foreclosures, and that inventory is quite formidable," said Robert Martinez, director of research for MarketPointe, a real estate data firm in San Diego.
As inventory has flooded the market, builders have pulled back because new homes are more expensive and they are struggling to compete with deeply discounted foreclosures, analysts said.
The crash in permits for condominiums is a result of overbuilding after a boom in condo conversions, said Nathan Moeder, an analyst with The London Group, a San Diego real estate advisory firm.
"You're not going to be building if no one is buying," he said. "The challenge, though, is ... will we have the product for people to buy or to rent when indeed the market improves? And it's very likely that there will not be enough supply to cater to that demand."
Connal echoed that concern, saying there will be a housing shortage when the market does return.
Though a low in permits preceded by four years the turnaround of San Diego County's previous housing recession, some analysts said this recession, which began with falling prices in November 2005, will be shorter because prices and sales have declined at much sharper rates.
Other analysts and economists disagree, saying the market still has two or three more years of decline before recovery.
Martinez, the MarketPointe analyst, said he thinks builders need to see two consecutive quarters of positive sales compared with the same months in the previous year before they get back into building new homes.
"We're coming off a couple of historically bad quarters," Martinez said. "So I'm not willing to say, 'Thud, we've hit bottom.' But I would suspect we're getting close, if we're not there already."
Including March home sales, monthly sales for San Diego County have been lower than the year before for the last 45 months, according to DataQuick Information Systems.
Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com.
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anotherview wrote on Apr 16, 2008 2:43 PM:Demand for housing in California has not really diminished but remains dormant or latent, surely in part from economic uncertainty. Based on present demographics, and population increase, demand typically exceeds supply by two to one. Plenty of housing and potential buyers exist right now, and soon enough they will come together. Economists and builders know these facts and fundamentals. Let us hope this time, however, that the lenders will exercise good sense as to borrower qualifications, instead of caving into greed from churning activity via questionable purchases and loan refinancing frenzy.
clement wrote on Apr 16, 2008 5:44 PM:House prices will go down to '03 prices or even lower. The increases from '03 to '07 were fueled by all of that phony mortgage money. That money is gone forever. Plus now we face a withering recession along with a huge trade imbalance and a $14 trillion dollar deficit because we cut taxes but did not cut spending. Hold on to your hats. Rough road ahead.
osider wrote on Apr 16, 2008 9:55 PM:Traffic less on I5,less cars on oside streets, the economic downturn in real estate and building combined with higher gas is a blessing in disguise. We can finally move around and not spend half our lives glued to the steering wheel and brake pedal Screw the bia, they are the biggest users of illegal labor, never hire US workers, they are slime.
Mary wrote on Apr 16, 2008 10:15 PM:Great news. Only way to get out of the falling housing price mess is to limit supply. It will take several years to work off the excess supply but we still have the best weather on the planet. Then it will be back to the races.
Encinitas local wrote on Apr 17, 2008 1:26 AM:I have to agree with Oside. this is great news. I hope it lasts for 10 more years. We have to many people in S. Ca anyway. This is great!
Charlie wrote on Apr 17, 2008 4:17 AM:Is there any way to determine how many building permits are for replacing homes lost in last years fires? I would think that most of these permits are for re-builds, certainly not spec.
Umm.. wrote on Apr 17, 2008 10:25 AM:Home building permits hit all-time low
Construction indicator drops 64 percent in first quarter - D'oh! The BIA did it to themselves, too.
Roy wrote on Apr 17, 2008 12:06 PM:This is great news..
..
Bill wrote on Apr 18, 2008 2:48 PM:“During the previous housing recession in the early ’90s, home sales began to recover about one year after building permits hit a low point. Prices, however, did not recover for four years.”
Since permits have not yet hit a low point (or perhaps just did), I guess we can expect prices to bottom out in four years or so (2012)?
That would be my expectation.
I’ve had this discussion with people all the time who say the market has bottomed. I draw a major distinction between bottoming in volume, and bottoming in prices.
I think that in some markets, we have already passed the bottom in volume. Within 12 months nationally, I think we’ll see a clear trend of new housing starts increasing again.
Prices will take a lot longer.
Housing starts will go back up again in the near future and everyone will start to cry “recovery”. What they don’t realize is that the builders can put these homes up at 50% of the cost that those who bought at the peak paid. The builders will lead the charge to the bottom as they can much more quickly adjust their costs (primarily land) as the market falls apart.
See you in 2012!
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