Five years ago, Lehman Brothers filed for bankruptcy, and the U.S. economy plunged into the worst financial crisis since The Great Depression. There were few areas of the country harder hit than the Inland Empire. But now, the region that was once a foreclosure capital is seeing housing prices soar and housing construction roar back.
New home construction has risen by 40 percent since last year, according to Real Estate Economics.
Permits for construction are up 70 percent, meaning the pace of building will only continue in the coming months.
“We think it’s the right time to deliver new housing to the market,” said Steve Ruffner, president of KB Home Southern California.
The company has 17 new communities open to buyers in the Inland Empire, including five it opened the past few weeks. It plans to open another eight in the coming months.
“Our pace has increased,” said Ruffner. “We’ve opened more communities than we did the prior year.”
Building, with a post-recession twist
On the eastern edge of Temecula – a bedroom community about 60 miles between both Anaheim and San Diego – KB Home is starting to construct a master planned community called the Pinnacle at Roripaugh Ranch that will have 98 homes by next year. The company plans to eventually build more than 1,100 homes.
As we step from the 100 degree heat outside to a heavily air-conditioned three bedroom, two and a half bath model home, Ruffner turns from executive to master salesman. He touts everything from the customizable floor plans to Temecula’s weather – the best in the U.S. he claims.
And there’s a reason the company is building.
“The used housing market, there isn’t any inventory and what’s left is very picked over and not that attractive to the new home buyer,” said Ruffner.
Compared to the coast, living here is a steal. A 6-bedroom home with a three car garage can be yours for less than $500,000.
The catch is the drive.
“It’s a long commute, but there’s an old saying: ‘You drive until you qualify,”' said Brad Hunter, chief economist at Metrostudy. “With the prices of homes moving up very rapidly, people are having to drive further out to afford a home.”
KB Home has even prepped a post-recession sales pitch: Ostentatiousness is out. Affordability is in. There’s a graphic next to the thermometer showing how much you’ll save on your electric bills.
“One thing that we’ve changed is that it’s less about bling and it’s more about what they really want,” said Ruffner.
Ilva Nanci, a retired high-school teacher who now rents in Temecula, thought she wanted to buy a resale home. But she wasn’t able to find any she liked.
"There were a lot of dislikes,” Nanci said. “Some of them you’d go into and they just smelled really bad.”
She thought she wouldn’t be able to afford a new home.
“I was very surprised,” Nanci said. “You actually save money by buying a new home. With all the built in technology and energy efficient stuff you save money on your utility bills.”
She is in a rush to buy because prices are going up so fast.
“I feel like if I wait, prices are just going to explode more than they already have,” Nanci said.
Rising prices can be good news for some
On a recent afternoon, a young couple, Amber and Matthew Welte, toured a KB Home model home at Roripaugh Ranch.
“We’re just getting an idea for homes,” said Matthew Welte. “We own right now and maybe are thinking of something bigger.”
If there’s any sign the Inland Empire’s darkest days are a distant memory – it’s the Weltes.
They bought their house just eight months ago in neighboring Murietta. Since then, it’s appreciated by $80,000. Now with a second kid on the way, they’re ready to trade up.
“If we were able to sell, we would be making money on our house and we’d be able to afford a bigger house,” said Amber Welte.
A Housing Shortage
Buyers such as the Weltes and Nanci have few choices these days, according to G.U. Krueger, a real estate economist at Krueger Economics.
“We’re seeing a significant housing shortage emerging, especially in the closer in areas in the Inland Empire,” said Krueger.
Temecula real estate agent Alisa Morrison says new homes will help ease the supply squeeze.
“Having the new homes available to purchase is a great opportunity,” she said. “A normal balance between a buyer and a seller market would be somewhere about four to five months worth of inventory, and we’re hovering around two months of inventory, which means we have more buyers wanting to buy homes than we have homes to sell them.”
A boom and bust economy
When the economy tanked, Temecula fared better than some parts of the Inland Empire.
Still, in 2009, 80 percent of its home sales were “non-standard,” involving short sales or foreclosures, according to data obtained from the California Regional Multiple Listing Service. (That compares to 18 percent so far this year)
Morrison remembers driving around, past block after block of abandoned houses.
“There were a lot of dead yards, a lot of overgrown weeds,” she said. “There were a lot of homes that needed paint and carpet, landscaping, and appliances. There was a lot of vandalism.”
It was a far cry from the heady pre-crash days, when the Inland Empire was hailed as one of the country’s fastest growing economies.
“The rapid growth shows no signs of letting up,” NPR co-host Michele Norris announced in 2004, introducing a three-part series about the booming region.
Prices rising, but not approaching highs
At the peak in 2006, the median home price in the Inland Empire was $403,000, according to Real Estate Economics. In 2011, it hit a low of $172,000.
Though home values are rising, they’re not anywhere close to where they were before the crash.
“Prices fell so dramatically in the recession that it will be years before we see the peak again,” said Mark Boud, a principal at Real Estate Economics.
Boud’s models show that Inland Empire housing values will keep rising, by 12-percent this year and 10.5-percent next year. But then, they’ll flatten out.
“We think that by 2018, we’ll hit a median value of $290,000," Boud said. "That’s still $100,000 below the peak level we hit in 2006.”
A good time to build
Boud's projections – dismal for anyone who bought at the top – help explain why many homeowners are still waiting to sell, not wanting to eat a loss.
Combine that with the investors who’ve gobbled up many foreclosures and what you get is very few homes for sale.
Which is why KB Home, Van Daele, and Standard Pacific, are racing to build at the 800-acre tract Roripaugh Ranch in Temecula.
The same land was approved for a massive development in 2002. But the projects never got off the ground before the recession hit. There was a fire station built to serve thousands of would-be residents that never opened.
Now, the builders are at it again.