Mid-Year Update

Mid-Year Update

As we enter the second half of 2014, a sense of uncertainty seems to have set into the Southern California land markets. Through 2012 and most of 2013, during the early stages of the housing market recovery, the land market was characterized by rising prices and transaction volume and a general sense of buoyancy. However, towards the latter part of 2013, it began to seem as if some of the air was starting to seep back out of the market as it became evident that the economic fundamentals were not quite strong enough yet to maintain the pace of recovery in housing. This softness has generally continued well into 2014 due in no small part to a weaker than expected spring selling season.

Nevertheless, selected tier one sub-markets have maintained buoyancy and continue on an upward trajectory. Among the continued top performing land sub-markets are those that are strongly influenced by foreign buyers and domestic homebuyers at the top end of the economic food chain. Examples of such sub-markets include most of the San Gabriel Valley and Orange County, both of which have continued to garner significant strong interest from the homebuilding community. The strength of these tier one sub-markets is such that numerous market participants are even expressing concerns about frothiness and bubble-like conditions as both housing and land prices seemingly diverge from the fundamentals.

On the opposite end of the spectrum, the inland land markets, where builders traditionally pull most of their volume, have experienced significantly decreased activity over prior years as homebuilders deal with tepid homebuyer demand and longer than expected inventory from earlier acquisitions. While not at a complete standstill, homebuilders are treading cautiously and picking and choosing their spots using tighter underwriting standards (e.g, no appreciation) resulting in the soft land market conditions. General consensus seems to be that until the economic recovery trickles down to the average citizen in a meaningful way and mortgage financing criteria loosens, the demand for new homes will stay weak in non-core markets and, thus, hold the Southern California land markets back from coming fully alive.

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Steve Devorak
Steve Devorak 152 posts

Steve Devorak is a former Director of Land Acquisition and Project Manager with extensive experience in the Southern California land market.

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