Supply and demand disruption plagues Southern California
Supply and demand disruption plagues Southern California – Housing Wire
Sterne Agee recently toured five Southern California new home communities between San Diego and Los Angeles. These communities are estimated to be 5% of the homebuilder coverage’s neighborhoods, but a prime example of the supply and demand problem happening throughout the country.
The area toured included the cities of Carlsbad, Oceanside and San Marcos and had starting prices of $300,000 to $990,000. Sterne Agee analyst Jay McCanless believes these communities have less than two months of existing home supply, which historically indicates sellers can steadily raise prices.
“Our sample is not meaningful on a statistical basis, but we believe it illustrates the stress between a lack of real estate supply and growing housing demand that we estimate is happening in numerous US MSAs,” writes McCanless.
A lack of supply has pushed home sales down in Southern California as well. Down 0.7% from 16,058 sales in January, total sales in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties reached only 15,945 in February, according to DataQuick.
In some cities, like San Francisco, supply and demand has pushed prices so high it’s nearly impossible to afford living there. Trulia Chief Economist Jed Kolko noted, “High home prices cause many lower- and middle-income people to leave California and move to other parts of the country where homes are more affordable.”
A different public builder owned each of the five communities toured. In four of the five communities, there was heavy customer traffic in the neighborhood on a Tuesday, when the company toured. At each community, the salespeople said the traffic was full of high quality customers who could obtain a mortgage, according to Sterne Agee.
There were no speculative units for sale, with the exception of one townhome community, and less than two lots for sale on average. Three of the five communities had sold through the current allocation of lots and the salespeople were waiting for more.
“One community had completely sold out in just under 11 months and was in the process of finishing and closing on the remaining units,” said McCanless.
Three of the five communities toured pointed toward base prices increasing anywhere from 3% to 15% since the neighborhood opened for sale.
“We believe the average active lives of the communities we toured is 11 to 18 months, so we view these observations as reflective of current conditions,” said McCanless.