After years of saying the upcoming year could be the one for a housing shift, we’ve probably got it right this time.
Home sales have been slowing in the second half of this year with prices softening.
As of November, the median sales price of an Orange County home is down about 7% from its all-time high of about $729,000 set in April, according to the California Association of Realtors.
Prices are expected to end the year up about 2%. But next year they could drop by 6.4%, according to economists at Chapman University in Orange.
The effect will be felt beyond housing appraisals. It stands to result in fewer homes being built, and more speculative projects being shelved,bad signs for the construction and mortgage sectors, and the county’s economy in general.
“The housing market is dragging down job growth,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman.
Some 2,000 construction and housing-related financial jobs could be lost in OC next year, a 0.8% decline, Adibi said.
There’s always a risk of recession when the county’s housing market turns. But this time around a second straight year of heavy office construction is expected to help weather fallout from the slowing housing market.
“The office market is holding up well,” said Kerry Vandell, director of the Center for Real Estate at the University of California, Irvine. “I’m optimistic that employment will remain strong.”
For the first time this decade, the value of the county’s non-residential construction, led by office development, is expected to exceed that of the county’s homebuilding in 2007.
The value of commercial building permits should reach $2.4 billion next year, compared to $2.1 billion for homes, according to Chapman. The building permit valuation for both sectors was expected to reach $2.3 billion each this year.
It’s a big resurgence for commercial development. The sector made up only 34% of the county’s total construction in 2002, when office vacancy rates were higher and developers focused their efforts on building homes.
There’s now as much office construction in the county as there’s ever been.
In all, there’s about 4 million square feet of office space under construction, according to the Newport Beach-based office of Grubb & Ellis Co.
That’s more than anywhere else in the state, including San Diego (3.1 million square feet), the Inland Empire (2.9 million) and Los Angles (1.8 million).
Close to 100 floors of high-rise office space are under way and are set to finish in spring and throughout the rest of the year.
More could be on the way, if big projects like Michael Harrah’s 37-story, 600,000-square-foot tower in Santa Ana break ground.
The heavy office development is based on continued job growth in the county and near-record vacancy rates, not to mention a continued influx of investor money.
“The velocity of deals out here is unlike anywhere else,” said Rob Neal, managing partner for Newport Beach-based investor Hager Pacific Properties.
“2007 is going to be very strong,” said William Halford, chief executive of Newport Beach-based developer Bixby Land Co. “The capital market is going to remain to be awash in cash. Even in light of an improving stock market, there will be more than enough capital. Real estate will be as active as ever here.”
Already, office development has given tenants an edge with landlords. Many big tenants are being courted to take large chunks of buildings going up.
But landlords are bullish. They see rents for both office and industrial space rising 10%, if not more, next year.
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PERSON TO WATCH: EMILE HADDAD
Lennar Corp. Chief Investment Officer Emile Haddad has spent the past few years thinking big and tall.
The Aliso Viejo office of the Miami-based company has grabbed sizable land around Orange County, with plans for developments in Irvine, Anaheim and Tustin, including some of the first high-rise condominium towers for the area.
Now comes the hard part for Haddad, who along with Lennar Chief Operating Officer Jon Jaffe, was the Business Journal’s 2006 Person of the Year.
With the local housing market seeing slow sales and falling prices,and the jury still out on near-term demand for high-rise living in OC,all eyes will be on Lennar in 2007.
We’ll be watching to see if the company alters or slows any of its big local projects, including Irvine’s Great Park and Anaheim’s Platinum Triangle. The company has plans for close to 15,000 homes in OC, with several billion dollars worth of investments in the early stages of development.
Some national homebuilders have been looking to offload some of their excess OC land inventory. Other builders, particularly in Irvine, are looking to build office and industrial buildings where homes once were planned.
Haddad insists no downsizing or other changes are in store.
“When you embark on a long-term project, you have to filter out the noise in the market,” Haddad said in October.
If anything, Lennar is looking for more here.
At the former El Toro Marine base in Irvine, Lennar recently worked with Irvine to add more than 5,800 homes to its Heritage Fields site, while cutting back retail and industrial space by 30%. Lennar’s plans for the site now include a total of 9,500 homes, while commercial and industrial space would total 3.7 million square feet.
Lennar also wants more in Anaheim. It has bid for another 53 acres of land around Angel Stadium of Anaheim, with potential development plans including another 1,800 homes alongside offices and shops.
,Mark Mueller
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COMPANY TO WATCH: ACC CAPITAL HOLDINGS CORP.
This much is sure: Orange-based ACC Capital Holdings Corp., parent of subprime lender Ameriquest Mortgage Co., goes into the New Year a lot differently than it did at the start of 2006.
A restructuring started this year, a big downturn with the slowing mortgage market and rumors of an outright sale should make for an eventful 2007 for ACC.
Once the No. 1 lender to borrowers with imperfect credit, Ameriquest pared operations this year.
In March, it closed 229 branches across the country and replaced them with four big processing centers. Close to 3,800 layoffs,about a third of Ameriquest’s work force,resulted.
Locally, the changes resulted in ACC looking to offload up to 650,000 square feet of the nearly 1.5 million square feet of office space it leased throughout the county, making it one of the area’s largest tenants.
Ameriquest now is the seventh-largest subprime lender, according to the latest data from trade publication Inside Mortgage Finance.
Speculation is rife that ACC,owned by Los Angeles billionaire and U.S. Ambassador to the Netherlands Roland Arnall,is entertaining offers to sell Ameriquest and Argent Mortgage, which acquires loans from independent brokers.
Mortgage trade publications reported earlier this month that JPMorgan Chase & Co. was hired to consider bids for all or part of ACC.
ACC long has been a rumored takeover target. But industry watchers give the latest speculation more weight given a wave of consolidation among lenders.
One part of Arnall’s empire already is being offloaded. ACC said this month it was selling its auto lending unit for $282.5 million. Fort Worth, Texas-based AmeriCredit Corp. is buying ACC’s Long Beach Acceptance Corp., which makes auto loans to buyers with credit problems.
,Mark Mueller
