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New Home Building May Return To San Diego

Evening Edition

Aired 1/30/12 on KPBS News.

A major new housing development in Mission Valley could be a sign that San Diego County’s dormant new-home construction industry is coming back to life. The project is transforming an old gravel pit into a planned community of condos, rental units and commercial space.

— C.J. Runnells has shown new homes for years. These town homes sell in the low-to-high $400,000 range and they feature the latest technology and styles.

Showing Model Home In Mission Valley Civitas Development
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Above: Showing Model Home In Mission Valley Civitas Development

“This is our residence 1-x. It is a four story home. It features three bedrooms, three-and-a-half baths and 1,760 square feet,” said Runnells.

The Shea Homes saleswoman walked through a new model home using sweeping gestures that one might see on “The Price is Right.” That’s easy to do in a townhouse full of designer touches.

“Many of our home shoppers like the brick wall and columns. It reminds them of a very urban feel,” said Runnells.

Her well-practiced presentation hasn’t been used much recently. That’s because the financial collapse crushed the new home industry in San Diego County. The resulting wave of foreclosures flooded the market with cheap competition. But that may be changing.

Sudberry Properties is turning the old Grant gravel quarry on the north edge of San Diego’s Friars Road into a 230-acre planned community. The development will include all kinds of properties.

“The overall master plan is set to include just under 5,000 homes of really different products, different home configurations, both on the rental and for sale. And also on the different price points,” said Marco Sessa, Vice-President at Sudberry Properties.

Marco Sessa, Vice President Sudberry Properties, showing Civitas Map to KPBS Business Reporter Erik Anderson
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Above: Marco Sessa, Vice President Sudberry Properties, showing Civitas Map to KPBS Business Reporter Erik Anderson

The first two phases are already on the market. Shea homes is building 200 town homes and Sudberry is putting finishing touches on a 300-unit rental complex. The project developer is not worried about the slumping new-home market.

“Part of that is because there’s so little housing being built right now,” said Sessa. “The last couple of years in the county we’ve built under 4,000 homes and that includes all home types. So there’s certainly a pent-up demand that is building.”

But the company is being cautious about building everything at once, so the project will be built out over 15 years.

“We’re beginning to market right now to home builders on future phases. We’re in full design of the next two sub-divisions within the master plan. And right now its looks very positive based on the feedback we’re getting from the builders,” said Sessa.

One observer said that approach measures what the market will bear.

“I think it’s a good sign we are putting in some new units and we’re putting them in a central location,” said Michael Lea, director of the Corky McMillian Center for Real Estate at San Diego State University. “But I would be a little cautious yet to say that this signifies a real turn around in the industry.”

Civitas construction site in San Diego's Mission Valley
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Above: Civitas construction site in San Diego's Mission Valley

The new home industry was pummeled by the subprime mortgage mess and then the financial collapse. Building permits in San Diego County were running at about 10,000 a year in 2006, according to the Building Industry Association of San Diego County. That fell to just under 3,000 in 2009, but permit activity has since clawed its way back up to nearly 5,000 units in 2011.

“If you look at the level of new home construction, it has been bouncing around at a pretty low level,” said Lea. “That’s really reflecting the difficulty people have to get mortgages, the trade up market that I mentioned, the recession and unemployment, All those factors weigh in on the housing market. Along with the fact that we have this large inventory of existing homes for sale.”

Lea wants to see a couple of things before he’s ready to declare the new-home market is back. The number of distressed sales need to fall, home prices need to climb, and interest rates need to stay attractive to potential buyers, according to Lea. So far, only interest rates hit that mark.

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