So Cal’s coastal region: Don’t call it a comeback

The new-home market is starting to come back in the Southern California coastal region as buyers realize low prices and low interest rates, especially in areas close to employment centers, will not last forever, says Steve Johnson, director of Metrostudy’s Southern California division. The region includes Ventura, Orange and Los Angeles counties.

In spite of continued job losses and high unemployment, the new-home market in Ventura, Orange and Los Angeles counties has improved slightly. The most significant improvement was in highly urbanized areas where home prices have been reduced by 25 percent or more. Many people see this as possibly the last chance to be able to afford to reside close to employment within cities they like and know well, Johnson said.

In Los Angeles County, developers have acted upon a surprising demand for infill projects at affordable prices, he said. Consumers also showed great interest and commitment to buy in the Fountain Valley area in Orange County, which many had considered built out. Builders have experienced the most success by going back to core areas and redefining affordable products with less square footage and fewer amenities.

In the Southern California market, finished vacant housing inventory decreased 7 percent during the fourth quarter of 2009 compared to the third quarter, according to Metrostudy’s survey data. Finished vacant inventory represented 51 percent of total inventory, Johnson said. Metrostudy uses finished vacant housing inventory as a fundamental indicator to monitor the health of the market. Typically, in the Southern California coastal new-home market, finished vacant inventory represents 18 percent of total inventory when the market is in balance.

The Southern California coastal counties were generally not overbuilt with midrise attached product or detached single-family homes. In Orange and Los Angeles counties, attached high-rises with six or more stories were overbuilt, and there continues to be an excess of inventory in that category. This inventory is starting to be converted to rental, but because of the complexity of each deal and the quantity of the units, it will take some time for this inventory to be absorbed, Johnson said.

Pacific Lifestyle Homes announced that the company has recently completed a review of all floor plans and standard features being offered in its homes—with some interesting results. The review found that today’s buyers are looking for homes with smaller overall square footage. The trend cuts across the industry, with the median size of a new home having dropped 9 percent from a peak of 2,300 square feet in the third quarter of 2006 to 2,094 square feet in the July-September reporting period, according to data from the National Association of Home Builders (NAHB). In addition, the number is expected to drop again when the fourth quarter figures are released.

The trend is fueled in part by first-time homebuyers who have less money to spend as well as concerns over operational costs and sustainability. “Buyers understand that it costs more to maintain a larger home and that can mean higher monthly energy costs,” said Kevin Wann, president of Pacific Lifestyle Homes.