2014 Forecast For San Diego's Housing Market
December 17, 2013 1:22 p.m.
Alan Gin, professor of economics at the University of San Diego, and author of USD's Index of Leading Economic Indicators
Related Story: 2014 Forecast For San Diego's Housing Market
MAUREEN CAVANAUGH: This is KPBS Midday Edition, I am Maureen Cavanaugh. The real estate bubble is widely accepted as one of the major causes of the great recession, and for the last five years people have been looking to real estate as a bellwether of the nation's recovery. The key for trends has become elusive, there's no doubt that real estate values are in better shape they have been in years, but a full recovery has not taken place and it is hard to her predict when it will. Also in the mix or whether interest rates will remain at record lows, if the job market will continue to improve, and if consumer confidence will continue to strengthen the housing market. I would like to welcome my guests Alan Nevin and Alan Gin. Welcome to the program. Now, information about the housing market is pretty much up and down, yesterday Dataquick published its latest housing report saying that home sales in Southern California last month were down from a year ago last this time. Do we know why this information was underwhelming?
ALAN GIN: I think that is a situation where lack of supply is beginning to impact the market. Construction dried up during the downturn and there was not much construction in single-family homes and there has not been and as a result, even though the economy is recovering, homes are not available.
MAUREEN CAVANAUGH: Housing prices are considerably higher than last year, is that also driven by a lack of supply?
ALAN GIN: Supply is down and that causes prices to increase because of the shortage.
MAUREEN CAVANAUGH: Give us a sense of how much they have risen over the year.
ALAN GIN: Prices are up double digits over the last year and rising for the last couple of years. In terms of price, the situation has been a solid one.
MAUREEN CAVANAUGH: I am wondering if prices are higher across the board or are the higher end housing going up faster than low level homes?
ALAN GIN: What we have seen is that those at the high end are doing well in terms of the economy and I mean the high-end of income distribution. This is a the high-end are doing better than low-end houses, but this has been stretched throughout the housing market.
MAUREEN CAVANAUGH: The me ask you both, a few months ago there were concerns that we are entering a home price many bubble, because prices seem to be going up so fast, do you think there is reason for concern about that?
ALAN GIN: I do not think so, prices have been rising rapidly but the fundamentals are strong. Job growth is up and interest rates are still low, there's a storage if in terms of supply, I'm not thinking we're seeing speculation that we saw in the 2000's.
MAUREEN CAVANAUGH: Is that bubble any reason for concern how much prices of gone up?
ALAN NEVIN: I'm not afraid of that, we will have another one, today we're doing okay. I should point out, what we're going through is not what's happening throughout the rest of the nation. Most of the - most of the wild uprising that we're seeing is on the West Coast from here to Seattle.
MAUREEN CAVANAUGH: This is not something that is happening in the heartland. It's just happening here.
ALAN NEVIN: Homes are going up maybe $10-$20,000, other than that, and not much. The mid-part of the country, we're not seeing that acceleration.
MAUREEN CAVANAUGH: Give us the context where we are in Southern California in real estate's in comparison with the rest of the country are cowardly strong and weak in real estate industry coming back?
ALAN NEVIN: Ours is coming back nicely, but remember that we have a perpetual supply and demand in imbalance. That is not about to change. As long as you have that imbalance you will see prices go up as long as there are jobs being created and a lot of them are.
MAUREEN CAVANAUGH: You specialize in market research involving new home construction, where is San Diego in recovering jobs and construction that was lost in the great recession?
ALAN NEVIN: We had 90,000 construction jobs jumped up to about 40,000 and we're back up to about 50,000, nowhere near recovery.
MAUREEN CAVANAUGH: That we take a phone call from Russell in Coronado.
NEW SPEAKER: One of the points that I think needs to be made is that the housing and market collapse and investors in San Diego came and picked up houses that were foreclosed on from the banks, and they have not put those houses back on the market. They keep them as rentals and are paying dividends on rentals and houses are not getting into San Diego right now, and investors are still picking up houses as we speak.
MAUREEN CAVANAUGH: Our investors factoring into our housing market, are they scooping up things that would improve the market for people?
ALAN GIN: I think he is correct in the fact that there is been investment for rental purposes, in addition to that a lot of permitting activity lately, so you have investors coming in with the idea of using properties as rentals and meet the housing demands, and that way rather than with single-family homes, and that is part of the reason we have a shortage of single-family housing.
MAUREEN CAVANAUGH: And rental prices are moving up as we speak.
ALAN GIN: The rental market is strong for landlords. People cannot find the single-family homes, they have to rent and that is the increase for single-family properties in value.
MAUREEN CAVANAUGH: The same survey that I mentioned earlier reported a lack of homes made available by a foreclosure last month which is bad for buyers. How much are banks controlling home prices in San Diego by holding back homes that they foreclosed on the market?
ALAN NEVIN: That is almost a nonevent. In places like San Diego bank holds virtually no properties, but it's investors have been buying, 21% of detached homes now investor-owned and 43% of condominiums.
MAUREEN CAVANAUGH: Is that healthy for our market?
ALAN NEVIN: No, it's very unhealthy. What will happen the next couple of years if the investors start taking their profits, it's what is happening and what is good is about that, it's loosening up the market.
MAUREEN CAVANAUGH: One of the things I know you're concerned about is the fact that not only construction industry is not come back, but home construction market is nowhere near where it needs to be, in order to satisfy the gross growth of San Diego. Tell us about that.
ALAN NEVIN: During the boom days, we were up to about 9000 single-family units a year being constructed, that were about 2000 unit's. It has to come back but we do not have luck here because during the recession, we use that time to resuscitate lot supply, but the money was not there this time. That was not there. There has not been money to resuscitate the lot supply and our next wave of new lots are probably two years away.
MAUREEN CAVANAUGH: That is the lag time between when lots can be prepared and development can actually open up for people to come in and buy. Let's talk about the trends you see in real estate coming up in the next year, job growth continues and the economy is the improving, with you when in fact what effect you see that happening on the economy?
ALAN GIN: I am forecasting job growth at about 25,000 in the local economy for 2014, that is all we have had for the last couple of years, that is a solid number and I anticipate interest rates will remain low for the first half of the year, so that combination both well for the demand side of the housing market.
MAUREEN CAVANAUGH: And Alan Nevin, you see money coming back into buying lots and starting new construction?
ALAN NEVIN: That is happening in South Bay, and I agree with Alan Gin on the jobs market here, the only soft spot is the fact that we're not producing moderate priced housing, particularly townhomes. That is always been the entry-level range if you go back east or to the Midwest, we do not have that here. We're missing that layer of moderate price housing.
MAUREEN CAVANAUGH: I read an article that you mention the multifamily units being built are apartment houses.
ALAN NEVIN: Virtually all of them.
MAUREEN CAVANAUGH: Instead of condos? Why is that?
ALAN NEVIN: There is a very large number of acres that rezoned in anticipated to become areas that obviously were not become condos in the last few years, and as a result the national of permit builders jumped on the land and are building thousands of apartment units.
MAUREEN CAVANAUGH: Instead of entry-level condominium units, something that would be in the affordable housing category.
ALAN NEVIN: Very much so. We're missing a dozen seat at density range of appropriate for townhomes, typically if you look at San Diego zoning you go from single-family to apartments with nothing in between,
MAUREEN CAVANAUGH: Let me ask you about the uproar this year, when it looks like interest rates are going up, real estate agents were saying it was the time to buy, because interest rates are going to go very high, what do you see for 2014? Will interest rates stay what they are?
ALAN GIN: They will be relatively stable, they have gone up from the lows. There has been a rise in interest rates, but I think that with the appointment of Janet Yellen as the head of Federal Reserve, she tends to be at a push to keep interest rates low, so mortgage rates will be relatively low, and with the improvement of the economy I think towards the end of the year there may be some tapering off.
MAUREEN CAVANAUGH: On the other hand, isn't that a disincentive in commercial developments?
ALAN NEVIN: I don't take as much impact. As rates start inching up, people start getting nervous and they think they have to buy now.
MAUREEN CAVANAUGH: This is what we heard this year, but that was hyperbolic. What problems do you see continuing for the housing market next year?
ALAN GIN: This is the growing level of inequality in the market. We had a devastation of the middle in terms of income distribution, because of that is a court agreed that went in and bought starter homes and condos and townhouses, and if that trend continues in the middle classes continues to be devastated, it will be tough at the lower end of the market.
MAUREEN CAVANAUGH: Alan Nevin, that is more or less what you're talking about?
ALAN NEVIN: That is correct. Our local governments have not seen fit to develop general plans that include the opportunity to build a moderate price housing and particularly the city of San Diego is void of that type of zoning.
MAUREEN CAVANAUGH: What you see as the construction for the coming year? Of you see the problem of not having enough will continue, but you see the jobs improving and construction coming back next year?
ALAN NEVIN: I see a lot of apartments on the horizon, I have in my data back about 1000 units moving forward. Single-family's are going to stay low, 2000 to 2500, most of them are expensive, then there will be very little in terms of moderate priced housing.
MAUREEN CAVANAUGH: That is going to be tough for people looking for their first homes.
ALAN NEVIN: It is and what it means is that people have to move to areas further out, where they had not planned on that, like Riverside perhaps.
MAUREEN CAVANAUGH: Let me ask you both to help me wrap this up. We've been talking about the forecast for the listing for 2014, give us an idea what a healthy real estate market gives to our economy.
ALAN NEVIN: The construction industry has one of the highest multiplier effects of any industry in the nation. When you invest a dollar and construction you get the dollar back plus another two dollars. Basically every president except for a couple, they have said if you really want to get the economy back, you start making it really easy for builders to move forward.
ALAN GIN: One other contribution that real estate makes is that you have a effect as the value of real estate increases, homeowners feel wealthier and spend more money. Consumer confidence is helped as well, ideally you would like more people in the middle to experience that as well. That would help things in terms of getting the economy going again.
MAUREEN CAVANAUGH: Thank you both for talking about this.