Source: The Wall Street Journal.
July 11, 2012
The housing market has turned—at last.
The U.S. finally has moved beyond attention-grabbing predictions from housing “experts” that housing is bottoming. The numbers are now convincing.
Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.
Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes that are vacant is at its lowest level since 2006.
The reduced inventory of unsold homes is key, says Mark Fleming, chief economist at CoreLogic, a housing data-analysis firm. For the past couple of years, house prices have risen in the spring and then slumped; the declining supply of houses for sale is reason to believe that won’t happen again this year, he says.
Builders began work on 26% more single-family homes in May 2012 than the depressed levels of May 2011. The stock of unsold newly built homes is back to 2005 levels. In each of the past four quarters, housing construction has added to economic growth. In the first quarter, it accounted for 0.4 percentage points of the meager 1.9% growth rate.
“Even with the overall economy slowing,” Wells Fargo Securities economists said, cautiously, in a note to clients, “the budding recovery in the housing market appears to be gradually gaining momentum.”
Economists aren’t always right, but on this at least they agree: A new Wall Street Journal survey of forecasters found 44 believe the housing market has reached its bottom; only three don’t. (The full results of the Journal’s July survey will be released at 2pm ET)
Housing is still far from healthy despite the Federal Reserve’s efforts to resuscitate it by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year loan, according to Freddie Mac’s latest survey. Single-family housing starts, though up, remain 60% below the 2002 pre-bubble pace. Americans’ equity in homes is $2 trillion, or 25%, less than it was in 2002 and half what it was at the peak. More than one in every four mortgage borrowers still has a loan bigger than the value of the house, though rising home prices are reducing that fraction slowly.
Still, the upturn in housing is a milestone, a particularly welcome one amid a distressing dearth of jobs. For some time, housing has been one of the biggest causes of economic weakness. It has now—barely—moved to the plus side. “A little tail wind is a lot better than a headwind,” says economist Chip Case, the “Case” in Case-Shiller.
From here on, housing is unlikely to drag the U.S. economy down further. It will instead reflect the strength or weakness of the overall economy: The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses. “Manufacturing had led growth and construction had lagged,” JPMorgan Chase economists said last week.”Now the roles are reversed: Manufacturing growth has slowed as private construction comes to life.”
Plenty could go wrong. The biggest threat is a large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures; a flood could reverse the recent rise in prices. Or the still-dysfunctional mortgage market could get worse. Or overly zealous regulators or a post-election change in government policy could unsettle mortgage lenders or home buyers.
But the housing bust is over.
Costa Mesa-based Warmington Residential California has been selected by Rancho Mission Viejo to build the first new neighborhood in four years within the gated village of Covenant Hills in Ladera Ranch in south Orange County.
The Legacy Collection will present 28 predominantly single-level luxury homes on four streets on the west end of the custom lot neighborhood in Covenant Hills. They will range in size from approximately 3,041 to 4,159 square feet and some will include an optional second level casita for family or guests, a bonus room for games and home entertainment, or a combination of casita-loft-bedroom configuration. Prices are anticipated to begin from the low $1 millions.
“We are very pleased to have been given the opportunity to build on these 28 homesites in a location previously designated as custom home lots,” said Matt Tingler, executive vice president of Warmington Residential California. “We believe this collection will be very complementary to the existing neighborhood and are enthusiastic about debuting these large, single-level floorplans. They feature dramatic architecture and place strong emphasis on an indoor/outdoor lifestyle with spacious private centered and or open-side courtyards and incorporate many sophisticated features and options.”
Tingler said that the decision to subdivide these 28 former custom homesites was born out of the belief that there is a segment of the new home market that is currently not being addressed in south Orange County, specifically single level living for buyers who desire a single level luxury home on a generously sized homesite with ample space between each home. Forty percent of these sites are set on elevated single-loaded cul-de-sac streets with far reaching views of the San Juan Valley.
“These residences will have many custom-like qualities in that buyers will be invited to be part of the floorplan selection process since we are offering a variety of personalization opportunities for each available plan,” he explained. “Different interior configurations and multiple private second story living spaces can be selected. Buyers who come into process early will have a unique opportunity to work with us to customize their residence.”
Warmington is now previewing The Legacy Collection from the Covenant Hills Sales Gallery at 63 Bell Pasture Road in Ladera Ranch. A fully interactive digital presentation includes floorplan modules, artist’s renderings, an interactive site map and more. The sales gallery is open Thursday through Sunday from 10 a.m. to 5 p.m.
Construction on two model residences will begin later this month and the neighborhood will have its grand opening in the fall. For more information, and to view interactive floorplans, go to www.LegacyCollectionHomes.com . A representative for The Legacy Collection may be reached at (949) 481-6502.
The Warmington group of companies has a long history of homebuilding in Ladera Ranch and offered homes in the very first village when it debuted in 1999. Over the years as the planned community evolved, a previous Warmington company built and sold homes in various villages, with the last neighborhood selling its final home in 2008. Today, many of these homes are among the most beautiful and coveted in Ladera Ranch and remain in high demand in the resale market.
The newest Warmington companies craft beautiful, state-of-the-art family homes in only the finest locations and today have approximately 15 new home communities in various stages of construction throughout California and Nevada.
Founded as a custom estate builder in and around Hollywood in 1926, the first Warmington company gained early recognition as the “homebuilder to the stars” with a long list of celebrity clients. Over the years, the Warmington group of companies expanded and began building production homes on a larger scale while retaining the quality craftsmanship and attention to detail for which it had become known. The Warmington group continues to celebrate this rich history while remaining focused on the future.
Warmington Group Strives To Do The Right Thing For Partners, Lenders and Homebuyers At All Times.
By Allen Dorich
With its family ownership, The Warmington Group enjoys many advantages over other homebuilders, President and CEO Jim Warmington Jr. says. Along with having the ability to make decisions quickly,“The family’s reputation has also allowed us to get access to many sellers and opportunities,” he says.
The Costa Mesa, Calif.-based firm has a history in construction going back more than 85 years, Warmington says. The Warmington group of companies began as a custom homebuilder in Los Angeles and constructed estate homes for many celebrities, including actors Claudette Colbert, Henry Fonda, Tyrone Power and Douglas Fairbanks Jr.
“The family’s reputation has also allowed us to get access to many sellers and opportunities.”
By the 1930s, that first Warmington company had earned a reputation as a “builder to the stars” and had constructed homes in Beverly Hills, Bel Air and Westwood, Calif. Since then, the companies have built more than 40,000 single- and multifamily homes in California and Nevada.
In addition, The Warmington Group has many years of experience in both building and managing apartments. “This broad knowledge has proved invaluable in obtaining underwriting and designing the site and architecture for each new deal,” Warmington says.
Looking Out for Others
Jim Warmington Jr. began working for the group’s Southern California division in 1989 while he attended classes at Stanford University. After graduating four years later, he began working full-time at the company as a superintendent.
Warmington says one of the key factors in the group’s success is its dedication to strong ethics and doing the right thing.
“We strive to [build] communities which provide good financial returns for ourselves and our financial partners, while carefully accounting for the risks in today’s market,“ he says. “Plus, we never forget how important the home and community are to those that live there.”
For instance, “In 2005, we started slowing our land purchases as the market was clearly slowing,” he recalls.
“We felt that it was not in our interest, nor our partners and lenders’, to be overly aggressive on purchases at that time, even though we would have benefited financially from the extra work,” he explains. “During the subsequent years of the downturn, we built out thousands of homes and focused exceedingly hard on getting our banks paid off and our equity partners out as clean as possible, even though our company would lose money.”
The Warmington Group structured deals so that its banks got out sooner and whole, even if the group itself suffered additional losses. “Because of our focus of looking out for the best interests of our partners and lenders, we have been able to continue getting financing from the same groups, in addition to new groups who know our reputation,” he says.
Additionally, experience across for-rent and other types of for-sale products and price ranges allowed the firm to take advantage of other opportunities. “Early on in the downturn, we began working as a consultant to a number of banking partners to help them underwrite and manage their REO/distressed residential properties,” he says.
Although it was not very profitable, “It helped us retain some great team members and cover overhead,” Warmington reports. “Based on our relationships with our equity partners, we ended up helping to fee-build over 600 homes in five projects in California and Las Vegas.”
On the Outside
The Warmington Group has begun to acquire properties that are outside of what public builders are interested in, Warmington says. In recent years, the group has seen a rush of public builder activity in finished lot properties.
But the Warmington Group has focused on deals that the other firms overlooked, such as projects with less than 40 units or properties with remaining entitlement or other issues. “We also have focused on larger entitlement and land development projects, since publics are focused on mostly finished lots only,” Warmington says.
This year, Warmington says the group will use several strategies to cope with resale and foreclosure issues. “This includes buying properties where job growth is occurring and avoiding any locations where there is likely to be the risk of oversupply of houses, either from distressed resales or new home projects,” he says.
Warmington reports the strategies are working so far. “Today, the group is seeking revenue-generating projects that fall within its entitlement, land development and home-building expertise and is aggressively looking for new acquisitions that allow it to get back into its primary business of entitling and developing land, and building homes to create beautiful residential communities,” he says.
The Warmington Group also has sought more apartment opportunities. “Our affiliate, Warmington Properties Inc., has been managing 1,100 apartment units in California for about 40 years and nearly 1,000 in Nevada, as well as a portfolio of properties totaling in excess of $600 million that includes office, retail and industrial projects in California, Nevada and Arizona,” Warmington says.
The company is preparing to start construction on a 24-unit student housing apartment complex near San Diego State University, as well as an entitlement process on a apartment 500-unit complex in Temecula, Calif. “This is in addition to a 320-unit apartment project in [Las Vegas] that is currently being graded, with construction set to start in May/June this year,” he says.
“Also integral to our business plan, the group has focused on providing excellent service to its existing fee management clients and is seeking new fee management opportunities,” Warmington says. “These fee management deals allow us to retain employees and cover overhead.”
For the future, Warmington says he wants the group to take advantage of more opportunities that come as the market improves and grow its focus on multifamily. “The group has established and [maintained] successful relationships with its lenders, has protected its new capital and retained an excellent team to manage any opportunity,” he says.
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