New-home market stays the course

By: BRADLEY J. FIKES - Staff Writer

While existing home sales have dropped in North County as the supply has risen, demand and prices remain steady for the limited number of new homes reaching the market, say builders and other local real estate experts.

The biggest obstacle to the new home market at the moment, they say, is this winter's unusually rainy weather, which has delayed construction schedules.

North County new home sales had fallen to 949 in the fourth quarter of 2004 compared to 1,327 in the same period of 2003, said Russ Valone, president of MarketPointe Realty Advisors, a San Diego firm that tracks new housing construction.

But even with that drop, the quarter had the fifth-highest number of new home sales in North County history, he said.

Sales appear to be increasing in the new year, said Peter F. Dennehy, senior vice president of Carmel Valley-based Sullivan Group real Estate Advisors.

"What I hear from builders is that sales activity in North County has been steadily picking up in 2005 and traffic and sales levels are actually pretty good and getting better," Dennehy said. "Prices appear to be stable in most areas."

Dennehy said he did not yet have exact numbers for January sales.

Michael D. Pattinson, president of Barratt American, a Carlsbad-based developer spoke optimistically about the year 2005. Barratt American is building throughout San Diego County in communities such as Bressi Ranch in Carlsbad, with 632 houses, and Paramount Town Homes in Escondido, with 122 attached houses.

"We haven't seen any significant slowdown in the market," said Pattinson, who was president of the California Building Industry Association in 2002. "There's an opinion that the pendulum is swinging toward the tipping point and going the other way (to a buyer's market), but I just haven't seen it," Pattinson said.

Confident that long-term demand will be strong, builders such as Barratt American are putting more staff into North County.

More new homes ---- at the moment

Carlsbad officials said homebuilding activity is up so far in the 2005 fiscal year, which began July 1, 2004. Developers have activated, or "pulled" permits for 826 new homes, 97 of them in January. In the same seven months a year earlier, developers pulled 543 permits, 38 of them in January 2004. And in the entire 2003 fiscal year, just 591 houses were built in Carlsbad.

Permits are used in a two-stage process. Builders first get approval to get permits, then they actually pull them. Pulling permits is considered a better gauge of building activity than approvals. That's because building fees are paid when the permits are pulled. The fees can cost thousands of dollars per home, so builders usually don't pull them until they're ready to begin construction.

Although the numbers are up for the first part of the year in Carlsbad, the current pace of construction is expected to slow in a few months, said Scott Donnell, associate planner for the city. So when measured by calendar year, construction is expected to decline or at best keep even. Donnell said he expects from 1,000 to 1,500 units to be constructed this calendar year, compared to 1,476 in the 2004 calendar year.

This ebb and flow is natural, say builders and city officials, because new developments take years to build. While existing homes enter the market piecemeal, new homes become available in waves.

San Marcos outlook

Housing construction is also expected to decline in San Marcos during the current calendar year. During 2004, 2,321 houses were built, said Carl Blaisdell, the city's building division director. This year, Blaisdell said, he expects construction to decline to about 1,500 to 1,700 units.

The biggest chunk of construction is taking place in the master-planned San Elijo Hills community, which is being built by a number of "guest" builders such as John Laing Homes and Richmond American Homes. When complete, San Elijo Hills will have 3,466 houses, condos and apartments.

Last year, the community's builders pulled 600 permits, an unusually high number that included many multifamily and affordable housing units, said Chuck Noland, San Elijo Hills' general manager. This year, he said, the number will probably drop to 350, mainly single-family homes.

San Elijo Hill's builders limit construction so as not to flood the market and lower prices, Noland said. Instead, the builders look to get what they consider an acceptable margin to repay them for their up-front expenses that they have to pay to the master builder ---- Noland's company ---- along with a profit.

That profit, as measured from the time the builders start paying the bills until they sell the homes, determines the return on investment.

Peaks and troughs

Despite builders' attempts to control supply in each community, there is currently an abundance of new homes in North County, Noland said. That's because several large communities are releasing homes around the same time.

For example, Bressi Ranch held its grand opening two weekends ago. More Carlsbad homes are now entering the market at Calavera Hills, where projects are split between McMillin Homes and Brookfield Communities.

The homes don't go on sale all at once, because communities are completed in stages. Roads, electrical lines and other infrastructure ---- along with the actual construction of houses ----- has to be put in before the homes can be sold. However, sometimes, as in the case of Calavera Hills, homes are "presold," while still under construction. This ensures that builders don't get stuck with unsold inventory.

McMillin's Montara project at Calavera Hills, with a total of 102 homes when completed, has put 71 on the market. Six of the homes are still available for sale, said Pattie Walker, McMillin's vice president of new home sales.

Montara held its grand opening, with three model homes, in January 2004.

The 115-home Ravinia project at Calavera Hills, which went on the market in December, is "temporarily sold out," Walker said, with 29 homes sold.

Calavera Hills is halfway to completion, with 268 houses put on the market out of a total of 583 in the community. Of those 268 homes released for sale, 73 have completed escrow, 187 are in escrow, and eight have not been sold.

Starting prices at Calavera Hills range from $427,000 for Brookfield's Mystic Point project to $615,000 for the Montara project.

Gearing up for the future

The fluctuation of new home sales from year to year is strictly a short-term issue, say developers and real estate experts such as Valone. The most important fact over the long term, he said, is that the supply of housing in San Diego County, (as well as the entire state), has not kept pace with the rising demand for housing.

That supply-demand imbalance is the major reason housing prices are so high in the county, Valone said And in turn, that means developers are getting more interested in the county, even while the supply of available raw land diminishes.

John Laing Homes, D.R. Horton, Barratt American and Greystone-Lennar have recently added staff and increased their office space in Carlsbad, where developers active in North County and even Southwest Riverside County have clustered.

For example, Barratt American plans to increase its staff of 135 by about 10 percent over the next year, Pattinson said. John Laing Homes expanded its offices from 3,200 square feet to 15,000 square feet.

The growing popularity of attached housing is a major reason for the expansion, along with North County's emergence as a major population center, real estate experts say.

Condos and townhouses are less expensive than single-family homes and take up less space, both desirable attributes for a populous, expensive market such as San Diego County. But different skills are needed for their construction than for single-family homes, Valone said.

"It's a different technology. It's a different business," Valone said.

Last year, attached housing made up 9,686 of the 15,670 units sold in San Diego County, Valone said, a percentage that will increase as more raw land is depleted by homebuilders. That means the builders have to start adapting now.

"If they wait until all the developable land is gone, they're going to be too far behind the eight ball," Valone said.