California Construction Boom Makes Investors Nervous

The real estate market in southern California is thriving once more. As of this writing, major builders are making attempts to outbid each other on land while simultaneously trying to find construction workers to help them with improvements. And the homes under construction are larger and more expensive than they were in 2008.

The word “scrambling” is not inappropriate to describe the effort to which some builders are going to purchase California real estate. People are literally waiting in line to buy property. One prospect actually flew a friend to California so he could hold a spot in line. Another potential buyer actually hired two people to wait in line for 12-hour increments.

What were they all so anxious to buy? Huntington Beach homes, starting at $1,200,000.

What’s driving it
The demand is exacerbated by the fact that many investors perceive mortgage rates to be on the rise. They’re anxious to get in on the California market before the rates go even higher.

To add fuel to the fire, many South California homeowners still can’t sell their houses. This is because the real estate crash of 2008 left them underwater. As a result, the market supply is constricted, which puts further upward pressure on property prices.

Upward bound
Over the past year, the median home price in Southern California has risen 19% to $400,000. During the fourth quarter of last year, builders started construction on almost 2,100 single-family homes in the area. That represents an increase of more than 55% over the fourth quarter of 2011.

Of course, in 2012 the Southern California real estate market had almost nowhere to go but up. The preceding year had been utterly abysmal year new construction in the area — the worst on record, in fact.

Ripple effects
The boom in the Southland is really great news for the California economy. The increase in building will create jobs throughout the region. Some of the industries that will undoubtedly see a noticeable benefit include real estate services, HVAC manufacture and wholesale, building supplies, and general contracting.

During the recent real estate downturn, builders opted for smaller sales. They would construct modest, lower-square-footage homes that had more mass appeal in an economy stricken by a financial crisis. That problem is now passing, and the builders have adopted the “go big or go home” mindset.

California Construction Boom Makes Investors Nervous 2
Anna Johansson
Anna is a freelance writer and researcher from the Olympia, WA area who loves to obsess about weird topics and then write about them. When she isn't writing, she is outside on her bike and comtemplating her eventual trip to graduate school.

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