How do California homebuilding booms differ from busts?


“Numerology” tries to find reality within various measurements of economic and real estate trends.

Buzz: So, what might it take to get California homebuilders to ramp up their construction efforts?

Source: My trusty spreadsheet looked at California building permits for single-family homes dating back to 1990 and compared those patterns with home-selling data from the California Association of Realtors and some other economic stats.

Fuzzy math: It’s easy for the industry to blame explain a lethargic construction pace on bureaucratic difficulties in planning and executing homebuilding in the state. It’s not that their complaints aren’t true, but builders also can be picky about when they choose to build.


When you review 34 years of real estate activity by slicing the months into thirds based on 12-month changes in California permits, you find construction plans grew annually at an average 27% pace in building booms (the top third) and declined 25% annually in construction busts (the bottom third).

Or, looking at those periods in terms of month average permits: 6,150 permits in booms vs. 5,030 in busts – that’s 1,120 extra plans for new residences or 22% more.


How do those California booms and busts compare with other yardsticks gauging real estate and the broader economy?

Well, it seems builders like overall homebuying momentum.

Sales of California’s existing single-family homes grew 6% a year on average in homebuilding booms vs. dropping at a 5% pace in construction busts.

And those old homes go swiftly. Days on the market, a metric of selling speed, dropped 15% a year during booms vs. expanding by 21% in busts.

Like any seller, appreciation is appreciated by builders. California’s median selling prices of those single-family houses rose annually at an 11% clip in booms while dropping 3% in busts.

Limited competition also appears to be appealing. Inventory of California’s single-family homes for sale dropped 16% annually on average in booms vs. growing 24% in busts.

Builders also appreciate good vibes. Consider two national confidence yardsticks from the Conference Board.

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