There’s a saying in fashion that as goes California, so goes the rest of America. If that can be extrapolated to other industries, we might be seeing a housing slump over what has been a buyer’s market.
Reports say that a massive slowdown in San Diego spells fear for the rest of California and, possibly the rest of the country. “Interest rates are going up and there’s a thinking that they’ll continue to rise,” Tom Wermers, CEO of California builder Wermers Companies, said today, as quoted in the San Diego Union Tribune. “Lenders are tightening their scrutiny for loans and making them a little more conservative, which requires us to put up more equity and dilutes the return to the investors.”
In the first quarter of 2017, San Diego County builders were issued 1,409 residential permits—compared to 2,223 last year at this time. They haven’t been this low since 2012. But the bigger worry is permits for multifamily units: There were 819 permits issued this quarter, in stark contrast to 1,638 in 2016.
Borre Winckel, CEO of the San Diego Building Industry Association, said builders have gone after a higher-priced market, but they may be running out of high-end customers. “That demographic that can afford the top tier may be thinning out,” he said. “We don’t have the middle market anymore.”
There has been some effort to blame the slowdown on the weather, but Winckel says that’s just an excuse. Mulitfamily and residential housing would have both slowed, he said. Rain falls on residential and multifamily at the same time.
The National Association of Realtors, on the other hand, has said that the market remains strong. “Total housing inventory at the end of December dropped 10.8%, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory has fallen for 19 straight months.”
But a slowing housing market makes sense, as it appears to be the way the world is going. Canada is also slowing, choosing to tighten mortgage lending requirements. And Britain has been in stalling for months—profits dropping by more than half since this time last year.
But back in California, some investors remain positive. Robert Thorne, CEO of California West, says “Rates are at historic lows. Employment is high. I’d much rather be in a market like this than one where access to lots and land is wide open but there is no demand.”