A leading executive from one of the nation’s largest homebuilders summed up the current market climate with a new take on an old cliché: “The good news is we are selling a lot of homes. The bad news is we are selling a lot of homes!”
The executive captured the sentiments of more than 30 other representatives from the nation’s top public and private homebuilders at the 11th Annual Merchant Builder Symposium Roundtable and Luncheon. The informational event was held at the Cave at Europa Village, located in the heart of Temecula Wine Country on April 26.
The comment came after a delicious gourmet lunch prepared by Europa Village’s own Chef Dean during a roundtable discussion about Housing Trends and Opportunities, which was the theme of this year’s event. The executive’s remark that “selling a lot of homes” was both good and bad news points to the climate for today’s market, a climate of intense land acquisition by homebuilders, and a dwindling supply of new product for homebuyers.
“We are now at a point that we can say that the downturn is thankfully over,” said Jeff Comerchero, Rancon Group President and CEO, in his opening comments. “With that, the market is changing rapidly and the focus for many here today is clearly on developing new product for this emerging market.”
One of the executives got the best laugh of the day when he said: “I think everybody here should stop with their land acquisitions right now.”
Humor aside, the message was clear among the day’s participants: there is a run on land acquisition throughout Southern California. This uptick in activity is driving homebuilders from both the public and private sector to the surging markets of Southwest Riverside County. The word “bullish” came up several times in describing the general attitude about areas along the I-15 and I-215 corridors.
“If you would have told me 18 months ago that we’d be looking at properties along the two-fifteen, I would have said you were crazy,” said one of the builders. Another agreed saying: “We are going a little further out than we thought we would be at this time…it’s been crazy the last six to twelve months and scary on the land side.”
The fact that many of the builders in the room are either looking at projects, or have projects working in Southwest Riverside County was music to the ears of Riverside County 3rd District Supervisor Jeff Stone, who was a featured speaker at the event. Stone told the group that new home construction was a vital component of the County’s economy and that he was very pleased that so many builders were focusing on the area. He also noted that the County is making a 50 percent reduction in both TUMF and development fees to help increase new home building activity.
“We want you to be successful,” said Stone. “Like the manufacturing industry, your industry has the multiplier effect that ripples through the economy stimulating everything from retail sales to employment. I’m very happy to hear that you are bullish on Southwest Riverside County…so am I.”
The Supervisor said that the County’s planning department, which had been “gutted” during the recession, would be ready to handle a surge in permits and entitlements noting that the County has enlisted a pool of excellent contract planners who are ready to jump in to action as needed.
Employment, interest rates, and changing demographics came up several times during the day. John Mulville of Real Estate Economics noted that his group’s five year forecast predicts steady increases in employment, housing valuation, and interest rates during this real estate cycle.
“Real estate drives the economy and jobs in Riverside County,” said Mulville. “We see a steady market improvement through 2018 and a significant shift in demographics.”
He said that foreign buyers will play a significant role in this cycle and that by 2020 more than 50 percent of housing demand in California will come from foreign born households. He also noted that foreign buyers are more likely to pay more for a home than Americans. Most of the current foreign demand is coming from Canada, Japan and China, he said.
“This foreign investment is going to fuel higher price points,” said Mulville. “And it will continue to put pressure on the supply side of inventory.”
Other factors to watch closely are interest rates and housing values.
“Everyone would be well advised to keep a sharp eye on interest rates during the next few years,” said Mulville. “They are going to rise at a much faster pace than home values.”
Mulville confirmed again the consensus that inventory is a major challenge for the industry. He said in the heyday of the last cycle there were more than 660 active new home communities in the Inland Empire and today there are only 157.
“Active community counts are very low, and active communities are selling out faster than new openings are taking place,” said Mulville. “New home inventories have cratered.”
Rancon Founder and Chairman Dan Stephenson was quick to point out that the Rancon Group is busy entitling, and selling more than 7,000 lots in Southwest Riverside County and that there will be at least five new projects going on the market this year.
“We’ve been acquiring, entitling and selling property here since 1971. It’s what we do,” said Stephenson. “We prefer to work with three or four potential buyers for a project and then narrow it down from there. Our goal is to build long term relationships that help everyone in the long run.”