Multihousing leading real estate recovery

San Diego County’s housing market has returned to healthy if not boom times, according to two reports issued Wednesday.

Dodge Data & Analytics said October construction starts totaled $338.4 million in October, more than double year-ago levels. The increase was almost all attributable to residential activity, which was up more than three-fold from $73.8 million to $266.4 million. Through October, residential construction starts were worth $1.7 billion, compared with $943.8 million for the same period last year.

Freddie Mac reported San Diego is 66.8 percent above the lows reached in October 2010 but 37.9 percent below its 2005 levels. The secondary mortgage lender uses account mortgage activity, employment and income in all 50 states and 100 metro areas on its Multi-Indicator Market Index of housing market health.

San Diego ranked 26th in housing market health. The top five metro areas were Fresno; Austin, Texas; Honolulu, Hawaii; Salt Lake City, Utah; and Los Angeles.

“The San Diego housing market is in range (of normal housing activity) and improving,” said Freddie Mac.

Economists closely watch construction activity because of the multiplier effect of building, outfitting and occupying new dwellings and workplaces. Real estate has typically led economic recoveries but in the current cycle, it has proved less stimulative in the face of weak demand and tough financing rules.

An October upsurge in multifamily construction starts reversed a decline over 2014 levels, said Alan Gin, economist at the University of San Diego’s Burnham-Moores Center for Real Estate.

The region’s 18 cities and county government authorized 17 multifamily projects with 829 units in October, compared with only five projects and 268 units a year earlier, Gin said. A breakdown between condos and apartments and the size of individual projects were not available.

“Until this month, we were down year over year in terms of multifamily units,” Gin said. “It’s surprising given how tight the rental market has been. This has been a response to that.”

But the sudden improvement was not reflected in other construction sectors.

Single-family building permits totaled only 163 in October, compared with 146 a year earlier. Dodge put San Diego’s nonresidential development valuation was at $69.9 million, up from $66.7 million over the same period and year-to-date, $829 million, down from $2.7 billion a year ago.

“I would say that real estate has recovered considerably,” said Gin, who produces a monthly report on local leading economic indicators. “We’re not at the levels we were in 2005, which might be good.”

However, Gin agreed that the resale housing market is not booming, based on sales activity and inventory levels. He speculated that’s because many homeowners remain leery of selling and then buying a new property given the severe downturn and slow recovery over the past decade.

“You’d rather keep your house where it’s almost paid off or considerably paid off as opposed to moving up and taking on new obligations,” he said.

The pace of single-family-home construction remains far below the peaks of decades earlier, Gin noted, partly because of the lack of available land but also because affordability remains a challenge given the high cost of new homes.

Builders also are having trouble finding construction workers, many of whom have switched careers after losing their jobs in the downturn, he said. And it takes fewer workers to build apartment and condo projects than houses. Even if builders wanted to speed up construction, finding enough seasoned workers might be problematic.

“They can’t just bring people off the street,” Gin said. “They have to have some skill to do this type of work.”

Freddie Mac’s chief economist, Len Kiefer, said in a statement that some markets are “firing on all cylinders.”

“Western markets show little signs of slowing down with their local employment pictures continuing to improve and with applications to purchase a home still showing double-digit growth on an annual basis.”

However, Freddie Mac called the pace of home-purchase applications “weak” for San Diego; the purchase index was set at 45.3, only 0.22 percent above August’s level, compared with 67.5 nationally, which was up 1 percent month over month.

San Diego’s three other measurements that go into Freddie Mac’s indicator — payment-to-income, current on mortgage payments and employment — were considered strong.

In a separate report Wednesday Freddie Mac said mortgage rates averaged 3.95 percent for 30-year, fixed-rate loans, down from 3.97 percent last week and the same figure from a year ago.

While relatively low rates have made home buying more affordable, tougher underwriting rules have made mortgages harder to obtain for many would-be buyers.

As for nonresidential development, Gin wondered how the slow pace of office, retail and industrial construction can continue for long, given San Diego’s relatively strong job market that has brought unemployment down to 5 percent.

Employers apparently have managed to hire more workers without adding the usual amount of space through more efficient planning and other steps.

“As a result, nonresidential construction has dropped precipitously,” he said.

He called the latest nonresidential construction start data concerning, adding: “I think this downturn right here means in the next few years there’s going to be a rebound for more in the nonresidential (sector).”

CoStar Group’s most recent quarterly report offered some hope for improvement. It said the value of office, industrial and retail construction currently under way stands at $2.1 billion, up from $1.6 billion in the fourth quarter of 2014.

Construction starts can vary widely from month to month, so the October and even year-to-date figures don’t necessarily reflect the overall growth in the nonresidential sector. Once big projects are complete, they can add a great of space at one time.

roger.showley@sduniontribune.com ▪ (619) 293-1286 ▪ Twitter: @rogershowley