San Bernardino County Economic Update

Construction & Real Estate Update -- April 2010

According to DataQuick, the County's median home sale price slipped back to $150,000 in April.  For the first four months of 2010, the median sale price has fluctuated between $150,000 and $152,000.  The rush to qualify for the $8,000 homebuying credit caused sales to soar to 2,955 and 2,744 in March and April, respectively.  With the end of the federal homebuying incentive program, sales volume may decline starting in May.  In California, lower-priced units (<$300,000) are now selling very quickly (3.3-month supply), while the sales of higher-end homes are still somewhat restricted by the credit crunch in the jumbo loan market (9.7-month supply for those over $1 million).  More recently, however, the jumbo loan market seems to have "thawed" a bit, and the unsold inventory index declined from 18.7-month supply in 4/'09 to 9.7-month supply in 4/'10.

In April, permits for 84 residential housing units were issued, compared to 260 issued in February and 121 in March.  All 84 units were single-family residences (SFRs).  (The revised March data showed that all 121 in March were SFRs also.  April is the second consecutive month in which no permits for multi-family units were issued.)  Activities were mostly concentrated in six cities: Rancho Cucamonga (23), Victorville and Twentynine Palms (9 each), Montclair (8), Fontana (7), and Chino Hills (5), and the unincorporated areas added another 16.

There were no new retail nor industrial building permits issued in April.  Commercial office permit(s) valued at $309,000 was issued in Victorville.  In March, we saw building permits issued in all three major categories of nonresidential construction for the first time in a year.

Home sales & prices for January 2010

According to DataQuick, the County's median home sale price declined slightly to $150,000 in January.  Sales volume dropped significantly, from 2,934 in December to 2,252 in January.  Sales of homes tend to drop in January, but this time the market was probably skewed by the first expiration of the first-time home purchase tax credit.

DataQuick press release: http://www.dqnews.com/Articles/2010/News/California/Southern-CA/RRSCA100216.aspx

Building permits data for January 2010

In January, 136 residential building permits were issued, compared to 150 issued in 12/'09.  Of those, 117 were single-family residences (SFRs) and 19 were multi-family units.  SFR activities were mostly concentrated in 4 cities: Fontana (26), Victorville (23), Adelanto (11), and Apple Valley (10).  All 19 multi-family units were in Fontana.

For the first time in five months, San Bernardino County saw a permit issued for one of the three main categories of nonresidential construction.  While there were still no commercial office nor retail building permits issued in January, there was a little life in the industrial sector -- some new equipment for a mining operation in the High Desert.  For commercial office, it was the eighth consecutive month of no activity.  For the past 17 months, there were 13 months in which no commercial office building permits were issued.  For retail, it was the fifth consecutive month of no activity.

Construction & Real Estate Update -- December 2009

According to DataQuick, the County's median home sale price declined slightly to $154,000 in December after posting six consecutive months of increases.  Sales volume also increased slightly, from 2,751 in November to 2,934 in December.

During 2009Q4, the number of trustee deeds recorded (foreclosures) in the County held steady at 4,994, just 5 fewer than the 4,999 recorded in 2009Q3.  The number of foreclosures in the County has stayed near 5,000 per quarter for a year, even though the number of notices of defaults (NODs) has fallen for three consecutive quarters.  The pressure on the housing market is still there, but the main source of defaults is now unemployment instead of bad loans.  While there are programs to help those with bad loans, there are almost no programs designed to deal with unemployment-induced foreclosures.

In December, 150 residential building permits were issued, compared to 324 issued in 11/'09.  Of those, 108 were single-family residences (SFRs) and 42 were multi-family units.  SFR activities were mostly concentrated in three cities: Rancho Cucamonga (26), Fontana (25), and Chino (16).  All multi-family activities were in Fontana (27), Chino (9), and Ontario (6).  SFRs accounted for 57% of all housing units permitted in '09, down from a peak of 92% in '05.  For 2009, there were 2,493 units permitted, or 86.5% lower than the level in 2004 when construction activity peaked.

For the fourth consecutive month, and fifth time in 2009, there were no commercial office, industrial, and retail building permits issued in December.  For commercial office, it was the sixth consecutive month of no activity.  For the past 16 months, there were 12 months in which no commercial office building permits were issued.  Compared to the peak year of 2007, office construction was 93% lower in 2009.  The County had just one large industrial project permitted in 2009 -- the Dr. Pepper/Snapples plant in Victorville.  Compared to the peak year of 2006, industrial construction was 91% lower in 2009.  Compared to the peak year of 2007, retail construction was also 91% lower in 2009.

Construction & Real Estate Update -- November 2009

According to both DataQuick and the California Assn. of Realtors, the County's median home sale price rose to $160,000 in November -- the first time the median sale price increased by $10,000 or more since the price decline began in 11/'06.  The rush to qualify for the home purchase tax credit may have helped boost the sales volume and price.  The credit has been extended to 4/30/2010.

In November, 325 residential building permits were issued, compared to 354 issued in October.  Of those, 92 were single-family residences (SFRs) and 233 were multi-family units.  SFR activities were mostly concentrated in three defined areas: Rancho Cucamonga (28), Victorville (21), and unincorporated areas (12).  All multi-family activities were in Rancho Cucamonga (223) and Ontario (10).  There has been a very visible change in the composition of the housing stock being built.  During the heydays of the housing boom (2005 and 2006), SFRs accounted for over 90% of newly-built housing.  In the past three months, the proportion of SFRs has declined to just 35%.  This is of interest to those who monitor the health of the construction sector because compared to SFRs, multi-family units require significantly less labor and cost less to build.  For instance, based on the RIMS multipliers, in 2005 a SFR took 2.18 man-years to build, compared to 1.01 man-years per unit for a duplex, 0.96 for a triplex/fourplex, and 0.92 for a complex larger than five housing units.

For the third consecutive month, and fourth time in 2009, there were no commercial office, industrial, and retail building permits issued in November.  For commercial office, it was the sixth consecutive month of no activity.  For the past 15 months, there were 11 months in which there were no commercial office building permits issued.  With the large inventory of default commercial properties out there and the asking prices for some properties actually lower than the cost of construction, financing for new construction is almost non-existent.

Construction & Real Estate Update -- October 2009

According to both DataQuick and the California Assn. of Realtors, the County's median home sale price remained at $150,000 in October -- the fifth month of rising or unchanged median sale price.

In October, 358 residential building permits were issued, compared to 302 issued in September.  Of those, 135 were single-family residences (SFRs) and 223 were multi-family units.  SFR activities were mostly concentrated in four defined areas: Rancho Cucamonga (62), Fontana (25), Victorville (13), and unincorporated areas (11).  All multi-family activities were in Rancho Cucamonga.

Just like in September, there were no commercial office, industrial, and retail building permits issued in October.  This is the third time this year that we saw a triple "0".  For commercial office, this is the 5th consecutive month of no activity.  For the past 14 months, there were 10 months in which there were no commercial office building permits issued.  With the large inventory of default or near-default commercial properties out there, financing for new construction is almost non-existent.  Industry experts do not expect a recovery in the immediate future.

Construction & Real Estate Update -- September 2009

DataQuick reported a slight decline in the number of mortgage defaults (notices of defaults or NODs).  The number of NODs in 2009Q3 was 9,833, down from 10,852 in 2009Q2 and 13,276 in 2009Q1.  The number of trustee's deeds (foreclosures) rose slightly to 4,999 in 2009Q3 (4,769 in 2009Q2 and 4,814 in 2009Q1).  Home sales have been running about twice the rate of foreclosures, which means the inventory of lender-owned properties is likely declining.

According to DataQuick, the median home sale price rose to $150,000 in September.  September marked the fourth month of rising or unchanged median sale price.  There may have been a rush to buy homes because of the expiring home buyer tax credit, which the government has just extended to April 30, 2010.

In September, 294 residential building permits were issued, compared to 158 issued in August.  Of those, 113 were single-family residences (SFRs) and 181 were multi-family units.  SFR activities were mostly concentrated in four defined areas: Fontana (30), unincorporated County areas (27), and Rancho Cucamonga (20).  Most multi-family activities were in the City of San Bernardino (165).

There were no commercial office, industrial, and retail building permits issued in September.  This is only the second time this year (besides March) that we saw a triple "0".  For commercial office, this is the 4th consecutive month of no activity.  For the past 13 months, there were 9 months in which there were no commercial office building permits issued.  With vacancy rates over 23% in the 2-county region, builders are both unwilling and unable to build -- financing has totally dried up.

Building Permits -- June 2009

The number of residential building permits issued declined from 183 in May to 131 in June (121 single-family residences and 10 multi-family units).  Of the 121 SFRs permitted, the distribution was: Fontana, 35; Rancho Cucamonga, 26; Victorville, 18; Apple Valley & unincorporated county areas, 11 each; Chino, 10; Twentynine Palms, 5; Montclair, 2; and Colton, Yucaipa, & Yucca Valley, 1 each.  The 10 multi-family units were all in Ontario.  Compared to a year ago, the June count was down by 77.5%.  The year-over-year comparison may not be meaningful, however.  There was a surge of permits issued in June 2008, which was likely the builders' response to fee increases starting in July 2008, the beginning of the local governments' fiscal years.

The valuation of non-residential building permits issued in June showed that the County continues to see very little new investment in this critical area.  After ending a four-month streak of no permits in April, both office and industrial sectors saw no permits issued in June.  The retail sector showed some minor activity with $4.9 million in valuations (Barstow, $2.5 million; Adelanto, $1.1 million; Fontana, $0.7 million, and Rancho Cucamonga, $0.6 million).

Residential Housing Market Report -- June 2009

In June, closed escrow home sales volume in the County stayed above the 3,000 level for the third month in a row.  This number should decline a bit in July due to the higher interest rates in June (when people lock in rates for sales that would have completed in July).

The County's median home sale price rose slightly in June to $140,000, or about the same level as in May 2001.  That is 41.7% below the year-ago level and 63.2% below the peak of $380,000 recorded in November 2006.  This is the first significant month-over-month increase in nearly two years.  As a result of the higher prices and the spike in interest rate in June, the "real net monthly cost" of homeownership increased from $711 in May to $756 in June.  That's the first increase since October 2007.  (The "real net monthly cost" of homeownership is calculated based on the median home sale price and the interest rate at the time, and with the assumptions of 20% downpayment, 1.25% total taxes & obligations, 15% income tax rate, and $1,000/year in homeowner's insurance.)

A survey by the California Association of Realtors showed that buyers have more difficulty getting financing for the purchase of foreclosed homes, which currently account for about 40% of the sales in California (and most likely higher in this County).  This may have to do with the relatively poorer condition of many of the foreclosed homes.  Some foreclosed homes are in such disrepair that they fail the inspection by mortgage lenders (through the appraisal process).  In such cases, the seller either have to pay for the repairs or mark the price down and sell it to willing cash buyers, who are most likely investors.  Therefore, stricter code enforcement, which helps prevent foreclosed homes from being vandalized, could help protect the value of the homes and those in their neighborhoods.

Residential Housing Market Report -- May 2009

New trustees deeds (foreclosure) data from DataQuick shows an increase of 1,337 for May 2009, or 4.5% over the April count.  The increase was expected since many lenders resumed their foreclosure proceedings in early spring.  The Federal anti-foreclosure initiatives will have a limited impact in California because too many units are already too deep in the hole.  Also, the incentives given to lenders are not enough to restructure many of the loans.  Furthermore, two recent national studies showed that more than one-quarter of foreclosures are "strategic defaults" -- homeowners voluntarily walking away from upside-down mortgages even though they can afford the payments.  Some are held back by personal principles, but as the amount of negative equity builds, more and more are willing to consider such a strategic decision.  In response, some lenders have agreed to some minor modifications (e.g., extend a promotional interest rate or even the term of the loan) to keep people from walking away from their houses.  The practice appears to vary greatly across the financial industry.  Some loans can be modified more easily than others because of the requests of the investors behind those loans.

In May, home sale volume in the County stayed above the 3,000 level for the second month in a row.  The inventory of unsold foreclosed properties was significantly lower in May because the sales volume was far larger than the number of foreclosures.  Back in January, a query of unsold foreclosed properties yielded around 14,000 units in the County.  In May, that same query returned around 10,000 units.  (That number, however, should bounce back in June because of the sharp increase in mortgage rates last month.)

The County's median home sale price declined slightly in May to $137,000, about the same level as in march 2001.  That is 45.2% below the year-ago level and 63.9% below the peak of $380,000 record in November 2006.  The County's median home sale price should have already broken through the bottom, however.  After factoring in taxes, insurance, and tax deductions, the real net monthly cost for a median-priced house based on the "current" mortgage rates (in May) was just $711, which was far below the going rent for most apartments in the County.  The biggest issues blocking some prospective homebuyers from taking action are 1) lack of enough downpayment (especially to avoid FHA and PMI), 2) less stable income during this economic downturn, and 3) less-than-perfect credit (FICO 740 or above is the new "gold standard").  Helping prospective homebuyers overcome some or all of these factors can thus help expedite the housing recovery.