California New Home Starts At Record Lows

Home Front: Worse than 1993 and 1982 for California’s housing starts.

I found some of the data in the linked article on new housing starts for California very interesting. I am going to just throw out some data, give a bit of analysis and let you decide on your guess for the future of California housing. Unless noted otherwise, the numbers are for total housing starts, single plus multifamily units.

• In 2008 California home builders started construction on 65,380 units, including just 33,048 single family homes.

• The record year for California home construction was 322,018 in 1963. Only 7 years of the last 50 have had housing starts below 100k, including a 5 year stretch in the mid 1990’s when build rates ranged from 85k to 97k per year.

• During the 1982 recession when mortgage rates were 16% there were 85,656 home starts, 20k more than in 2008.

• In the early 1990’s the U.S. government shut down the majority of the military bases in California, a major employer in the state. During the resulting recession, California home builders managed to build at least 84,656 (1993) units.

• The 20 year average for new home starts in California is 138,500. During the recent bubble year of 2002 to 2006 new home starts averaged 190,000 per year.

• California’s current population is approximately 38 million. In 1990 it was 29 million. The projected annual population growth rate is 1.5% compared to the U.S. average of 1.1%.

Analysis: I expect new home starts for 2009 to be even lower that 2008. 2010 will not be much better and with a 2 year lead time for the permitting process in California by the end of 2010 there will be a housing shortage in the state. The states population will increase by 1.5 million (think of all of Philadelphia looking for a place to live) and the economy will be recovering.

I have been stating for months that the first month when the median sale price does not decrease will set of a tremendous buying surge in California. Sales are already double the rates of late 2007 as many realize they will not see home prices again at these levels in California. With home builders building at less than half the historic rate the dynamics of the California housing market will be interesting to watch.

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