Affordability, Site Supply Contribute to ?99 Sales Dip in Southwestern U.S.

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Despite continued employment growth and a rate of economic growth that exceeds the rest of the nation, the combined California, Arizona and Nevada region witnessed a 1.3% overall decline in the number of new home sales during 1999.

February 29, 2000

Despite continued employment growth and a rate of economic growth that exceeds the rest of the nation, the combined California, Arizona and Nevada region witnessed a 1.3% overall decline in the number of new home sales during 1999. The reason, says a new report from The Meyers Group, is a short supply of buildable lots, price increases and a lack of affordable alternatives like condominiums.

The only exception to this was found in Northern California where new home sales grew in excess of 8% during the year. Strongest results were seen in the Bay Area, which saw a 13.5% increase year-over-year in new home sales. East and North Bay communities as well as the Santa Clara/San Mateo markets were particularly strong despite sizable price increases.

"Throughout the region, economic conditions remained strong, but depending on the market area these issues had a major influence," says Peter Denehy, a managing director with the consulting arm of The Meyers Group.

According to the report, Southern California communities were mixed. Orange County was up slightly, but Los Angeles, the Inland Empire and San Diego were each down. LA/Ventura was down 11.4% from 7,639 units in 1998 to 6,779 units last year. A major factor was the very low number of condominium developments to house buyers priced out of the single-family market by rising interest rates and generally higher prices. Condos comprised only 10% of the sales where it normally accounts for 25% to 30% of new home sales in Southern California.

In San Diego, supply was a major glitch in the North County area while the South County continued to show strength in 1999. In 2000, numerous new attached projects are expected to come online downtown and in North County communities.

Importantly, the report estimates that these market glitches will dissipate on average in all three states in 2000 for an overall growth in unit sales of 1.4%. The LA/Ventura area in particular is predicted to rebound strongly with 18% growth in 2000 with several new communities coming on line in the Santa Clarita and Antelope Valleys. In West L.A., Playa Vista will add 13,000 units to the market.

An important gauge of housing market demand used in The Meyers Group’s The 1999/2000 Western United States: Market Update and Outlook report calculates the ratio of employment growth in a given area to the number of building permits. Termed the E/P ratio, a 1.2 is considered to be the perfect equilibrium between housing supply and market demand. According to the report all market areas in California have E/P ratios in excess of equilibrium indicating pent up demand for new homes.

In the Phoenix market, which witnessed a nearly 10% percent decrease in new home sales in 1999, the trend should moderate but continue due to an E/P ratio of .81. This was due to continued permit issuance and moderating job growth during the year, the report indicates. In the Las Vegas market an E/P ratio of .96 indicates flat to moderate increases of new home sales from 21,728 units in 1999 to 21,800 in 2000.

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