Home sales slow in master-planned communities in California

Ontario Ranch, Irvine Ranch among the best-selling communities in U.S.

Master-planned communities have been attracting buyers for decades in California, from Rancho Bernardo in northern San Diego County to Westpark near Sacramento.

But the state’s big master-planned communities – think Irvine and Valencia – and their long-term dominance may be declining, as available land becomes harder to find and buyers’ needs change.

California had only four communities on the 50 best-selling master-planned communities national list in 2021 – half as many as in 2019, according to John Burns Real Estate Consulting.

And the state’s four largest master-planned communities reported home sales of 3,161 in 2021, a dramatic decline from the 5,021 homes just two years ago.

Ontario Ranch in the Inland Empire was the best-selling master-planned community in the state with 1,011 homes sold in 2021 – and the sixth-most nationwide. But home sales at Ontario Ranch were off 22% from a year ago.

Ranch battles

Irvine Ranch, arguably the best-known and often a model for other master-planned communities in the nation, was the second-best seller in the state (No. 8 in the nation). Irvine Ranch had an estimated 950 new homes that sold in 2021, compared to 800 a year ago.

Of course, master-planned communities sales are cyclical, especially as builders have different timelines for their new-home subdivisions. And new-home construction, especially with a critical shortage of construction workers, can take longer than in recent years. But they are definitely losing ground to other states, according to the annual report.

Master-planned communities in Florida, Nevada and Texas dominated the closely watched annual list. Florida had eight communities in the top 20, including first place with The Villages, about 45 miles northwest of Orlando. The Villages sold 4,004 homes in 2021, or almost 1,000 more than the top four master-planned communities combined in California.

Feature photo: Irvine Ranch Quail Hill by Guo/Adobe Stock

TOP MASTER-PLANNED COMMUNITIES IN CALIFORNIA IN 2021

Community	Home sales ’21	Home sales ’20
Ontario Ranch (Ontario)	1,011	1,292
Irvine Ranch (Irvine)	950	800
The Great Park Neighborhood (Irvine)	655	580
River Islands Stockton	545	640

Megamansion ‘The One’ is done – and available at a bargain price

Bargain-hunting or looking for the perfect Valentine’s Day gift?

Perhaps you should consider “The One,” a Bel-Air megamansion that has hit the market for $295 million.

The 105,000-square-foot mansion – the biggest home in the nation, slightly smaller than the average Target store – boasts 21 bedrooms and 42 bathrooms. 

The estate, which overlooks Los Angeles, also has a 30-car garage, 40-person movie theater, private nightclub, sky deck, putting green, bowling alley and salon.

$500 million dream becomes $100M-plus debt

For the builder and entrepreneur Nile Niami, The One also comes with a big headache – more than $100 million of debt. Niami dreamed of selling the one-of-a-kind estate for $500 million, but the decade-long project garnered little, if any, interest at that price.

So, as part of a bankruptcy deal, The One is listed for $295 million – about 40% less than the original price. If The One doesn’t attract a buyer, the megamansion will hit the auction block Feb. 7.

Apparently, two potential buyers have expressed an interest, according to multiple media reports. But, for now, The One is available – at a bargain price.

Higher improvement costs, smaller price gains are hurting home flippers

Home-flipping has always been a boom or bust proposition, and those hefty gains are getting smaller – a lot smaller in some markets in California.

Home-flippers completed home-improvement projects and sold their properties at a brisk pace during the third quarter, likely hoping to benefit from the booming demand and before mortgage rates rise, according to ATTOM Data Solutions.

But profit margins declined for the fourth consecutive quarter, the latest evidence that home-flipping – often inspired by HGTV and DIY programs – could be getting turned upside down. 

Nationwide, home-flipping profit margins dropped to 32% during the third quarter, compared to 44% a year earlier – and the lowest return on investment since 2011 (see table below), according to ATTOM.

Dramatic drop to profit margins from a year ago

California’s home-flipping profit margin was much worse. The state’s home-flippers had a 20% return on their investment in the July through September period, compared to 30% a year earlier.

And some cities had much-smaller profit margins compared to a year ago.

Fresno-area home-flippers endured a 54% drop – about $30,000 – on their return of investment compared to a year ago, the largest among the major metro regions in the state. But San Francisco (down 49%) and Los Angeles (off 42%) also had significantly lower profits during the third quarter compared to a year ago.

Bottom line: Home-flipping – once a fairly quick way to buy, improve, sell and net a nifty profit – has some serious challenges. The biggest is home flippers are paying more for homes to renovate. Then, when it comes time to sell, the 20%-plus gains of just a year ago are smaller today.

Add in the cost of an extensive renovation – the average flipped home in California was built in 1971, when yellow kitchen tile and shag carpet were popular – and the price for material, the profit on a flipped home has narrowed substantially.

“Home flipping produced another round of competing trends in the third quarter of this year as more investors got in on the action but got less out of it,” says Todd Teta, chief product officer at ATTOM. “It’s clear that declining fortunes weren’t enough to repel investors … We will see over the coming months whether the amount they can make on these quick turnarounds will still be enough to keep luring them into the home-flipping business or start pushing them elsewhere.”

FLIPPED HOME PROFITS SLIDE IN THIRD QUARTER COMPARED TO A YEAR AGO (DOLLARS AND PERCENTAGES)

Region	Profit Q3 ’21	Profit Q3 ’20
California	$103,750 (20.1%)	$113,000 (29.6%)
San Jose	$213,000 (19.6%)	$290,000 (32.0%)
San Diego	$131,875 (22.0%)	$145,000 (29.6%)
Los Angeles	$120,375 (17.8%)	$165,000 (30.8%)
Riverside-San Bernardino	$112,800 (30.7%)	$95,000 (33.3%)
San Francisco	$101,000 (11.9%)	$157,500 (23.4%)
Sacramento	$93,500 (22.7%)	$105,000 (36.2%)
Fresno	$62,000 (25.0%)	$91,500 (54.3%)

Pocket deals for homes are increasing

Pocket listings are a real thing, and real estate agents say they are increasing.

Pocket listings – homes sold without being marketed publicly – are gaining ground during the past year, according to a recent Redfin report. You may have even noticed some pocket listings during your online searches: homes listed and sold within a few hours (or even less).

Redfin crunched data to determine how common pocket listings are in several markets, identified as homes listed and sold within a day and homes that were never listed on the Multiple Listing Service.

Some markets in California have a double-digit percentage of homes sold that were never listed on the local MLS, including 28% in Bakersfield and 18% in Fresno, the two largest percentages in the state, according to Redfin. The percentage of homes listed and sold within a day is much lower; Oakland has the largest share at 2.9%.

Pocket listings banned by NAR, sort of

The National Association of Realtors banned pocket listings in 2020, citing they go against its “commitment to provide equal opportunity for all.” Pocket listings can affect people of color from them not being aware of a listing and the opportunity to buy a home.

But NAR members are allowed office-exclusive listings, where a home for sale is marketed within a specific brokerage company. And, of course, not all real estate brokers and agents are members of the California Association of Realtors – and the National Association of Realtors.

Of course, pocket listings may be more about opportunity than picking buyers – and future homeowners – for neighborhoods. 

“A fast housing market also increases the incentive for agents to pocket listings rather than deal with scores of showings and offers,” says Tyler Marr, chief economist for Redfin. 

CAR appoints new CEO

The California Association of Realtors has named John Sebree as chief executive officer, replacing Joel Singer, who recently retired as head of the statewide professional organization during the past 32 years.

Sebree has served as CEO of Missouri REALTORS since 2014, and is the former senior vice president of public policy for Florida REALTORS for 11 years. He also has extensive experience with the National Association of Realtors, the 590,000-member parent organization.

“John’s deep industry expertise and insight into the many issues facing the real estate industry and our members will help him enhance the association’s value proposition so that real estate professionals can remain at the center of the real estate transaction and succeed in today’s rapidly changing real estate market,” says CAR president Otto Catrina. “With extensive knowledge of organized real estate and the legislative process, he is well-positioned to positively impact members’ business success and ensure (CAR’s) marketplace and public policy impact.”