Bullish for '85. Cautious for '86.
That's generally how many Southern California home builders feel about the future, judging from comments accompanying the annual Los Angeles Times residential survey forms.
The optimism is fueled by a successful 1984.
As Donald B. Edwards, president of Malborough Development Corp., expressed it:
"1984 was the best year in Marlborough's 32-year history in terms of sales volume and profit."
Fourteen-year-old Pacific Scene Inc., based in San Diego, also posted a company record of closed sales of new homes throughout its operating regions.
And Irvine Pacific Development Co., a unit of the Irvine Co., recorded the highest home sales since it was formed 12 years ago with a 110% increase over 1983.
'Better Than Expected'
Said Roland Osgood, president of the firm:
"We anticipated that the economic recovery was going to make 1984 an excellent year for the home-building industry, but our results were much better than we ever expected. Both our for-sale housing and apartment developments performed exceptionally well throughout the entire year."
He attributed his firm's 1984 performance to the resurgence of the first-time home buyer and apartment rental markets.
Double-digit inflation of the late '70s scared off many first-time buyers and put a damper on apartment construction, which is now apparently booming in parts of Southern California. In fact, it may be booming too much in the eastern part of San Bernardino County, where, one builder wrote, "there are huge numbers of syndicators looking for investments, and unless we have economic growth far beyond that of our most optimistic Chamber of Commerce members, these syndicators will overbuild the market with apartments."
Several builders have also turned their attention to the first-time home buyer, and this is true even in Orange County, which has had a reputation for pricing out this market. As Randall W. Lewis, vice president and director of marketing for Lewis Homes of Upland, wrote:
"Builders in the Inland Empire cannot be complacent or ignore competition from Los Angeles and Orange counties. Orange County, especially the Irvine Co. under the guidance of Don Bren, has made some dramatic shifts in product types and marketing efforts that will have quite an effect on the commuter market. . . .
"One of the main themes for 1985 will be 'The Empire Strikes Back,' for that is exactly what is happening in Orange County. There will be a lot of product by some of the major land owners under $130,000, and it will be a real battle to see who can capture that share of the market."
With an improvement in the economy, Irvine Pacific started focusing on both the apartment rental and first-time home buyer markets with an effort to build housing in Irvine at an acceptable price--$80,000 to $150,000 in the case of homes for sale.
However, sales were up in 1984 at an Irvine Pacific project where condominiums are priced from about $250,000, and during 1984, the firm's parent, the Irvine Co., sold 12 custom home sites in Newport Beach from the mid-$250,000s to more than $1 million each.
"The luxury home market still exists," Candy Shepard, Irvine Pacific director of sales and marketing, observed, "but it's much smaller than it was before the recession hit in the early '80s." So her firm will continue this year to put an emphasis on the first-time home-buyer market and apartment development.
D&S, a Wrather subsidiary, has been concentrating on the first-time home buyer for 21 years, said Peter J. Sidlow, president of the firm, and it will continue in that role throughout 1985, which Sidlow views rather optimistically.
"Most people seem to think that the federal deficit, coupled with increased demand for dollars that accompanies a rapidly expanding economy, will cause interest rates to rise significantly in the final six months, but we do not concur, principally because we do not anticipate a particularly robust economy any time in 1985," he said.
"Instead, we expect a pattern of continued modest economic growth. Consequently, we expect interest rates to stay relatively stable, close to current levels, and the economy to experience a very low rate of inflation."
Absence of Inflation
If this proves correct, he looks forward to a good year for Southern California builders--"probably slightly better than 1984," though he emphasized that it "will not be a great year, for one key reason: the absence of inflation." Without inflation, he reasons, home shoppers are not as inspired to buy.
Walter E. Wolf, a San Diego developer who anticipated this year's booming rental market by starting construction on more than 800 apartment units in San Diego County, had this point of view:
"If interest rates remain as temperate as predicted, home buying will be very healthy, just not as brisk."