Merchant Builder Recap 2012 – Moving Into the Future

The Rancon Group was pleased to host its 10th Annual Southwest Riverside County Merchant Builders Symposium and Luncheon. This year’s event was held in the Cave at Europa Village in the heart of Temecula Wine Country, and featured a special prepared lunch from Europa’s Chef Dean. Participants included executives from some of the nation’s top homebuilders who actively discussed the future of new housing in Southern California.

After an interactive roundtable dissecting today’s market for new homes, Mark Boud of Real Estate Economics opened his presentation with a statement that summarized the spirit in the room.

“Wow, I haven’t heard that many positive words in about five years,” he told the group. “It’s been a challenge for us in this recent cycle, and I’m certainly happy to hear that we are all excited about the next five years.”

Boud backed his statement up with an informative presentation showing key gains in the areas he tracks for the merchant builder community. He compared traditional transactions (new and existing home sales) with distressed transactions from 2006 to 2010. The good news is distressed sales, dominant since 2008, are on the decline and new home sales are ticking up, although modestly compared to the most recent peak.

In his forecast, Boud sees the volume of foreclosure sales continuing to decline during the next five years along with distressed housing inventory. He also sees improvements in the new home market with shrinking inventories, and the potential of new home shortages in key areas.

“With the huge amount of distressed housing transactions in the past three or four years, new home transactions have been grossly unrepresented,” Boud told the group. “As the inventory of distressed homes decreases, we will see demand for both new and existing homes increase, but there are some challenges.”

He noted that the market of new homes is changing, and said that new home builders need to differentiate their product from existing home sales by touting energy efficiency, smart home technologies and environmentally acceptable solutions.

“We will need to educate new home buyers on the benefits of owning a new home as opposed to buying an existing home,” said Boud. “And, while building more efficient green homes, or zero-net energy homes, may be more expensive and less profitable for the homebuilders, it is the best way to differentiate new homes from existing homes.”

On that line, Boud noted that energy costs will likely continue to rise and that energy savings will play a significant role in the decision making process for new home buyers.

“It’s still all about savings for the homebuyers,” said Boud. “Just being green and environmentally friendly is not enough. You have to show them how that home is going to save them money, and hold its value over the years.”

On the job front, he said the manufacturing jobs throughout the Inland Empire have increased significantly in the past 12 months, which combined with an exceptional affordability index, will fuel home sales transactions in the coming months and years.

“Looking ahead, we all know new home construction is way down. With the rate of transactions gaining momentum, partly because of affordability, the inventory of housing in Southern California and the Inland Empire will shrink. I see a low point in inventory occurring in 2014 and 2015, and we may have another perfect storm hit the industry.”

For a copy of Mark Boud’s complete presentation, please contact

The theme of this year’s Merchant Builders’ Symposium was “Moving into the Future,” and the consensus of the group, and the featured speakers, was that future for new home sales will improve dramatically during the next few years.

Rancon Founder and Chairman Dan Stephenson sees the lion’s share of new home construction taking place in Southwest Riverside County. In a fact-filled presentation peppered with anecdotes from his own experience, Stephenson mapped the progression of development and migration of populations within California’s four largest counties: Los Angeles, Orange, San Diego and Riverside.

He noted how fast Riverside County and especially Southwest Riverside County has grown in the past few decades. He said the driving force in the area’s development has been, and is still, affordability.

“It’s basic economics 101: supply of available land, demand from an ever increasing population, and affordability. San Diego, Orange and Los Angeles counties are running out of developable land and that drives the cost of new homes up,” said Stephenson. “Riverside has always been the affordable alternative offering larger lots and homes for a fraction of the price in other areas.”

Stephenson showed a graph of home price-comparisons for the four counties from 1990; as well as a present-day chart listing Riverside home prices as 34 percent of Orange County, 55 percent of Los Angeles County, and 47 percent of San Diego County. He noted that Orange County is estimated at 90 percent “Build out,” while San Diego County is about 87 percent built out.

“Today, Southwest Riverside County is about 30 percent built out, so you don’t have to be a genius to figure out where new home building will be taking place,” Stephenson told the group. “It really is common sense, and I think we are going to see a very strong building cycle start here in the near future.”


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