Buoyed by winsome interest rates, blooming sales, growing construction in the move-up home sector and a rejuvenated condominium market, it’s been a bubbly springtime for San Diego’s housing industry.

The first quarter of 2003 recorded 3,078 new home sales at an average price of $468,651 in San Diego County, sustaining and even surpassing last year’s phenomenal activity. Despite a February slowdown over war jitters, second-quarter projections are for between 3,000 and 3,500 sales.

Housing supply prospects also are gaining. New single-family home permits in the San Diego metropolitan area totaled 2,641 in the first quarter, a 21 percent increase from last year. Multifamily permits grew to 3,105 in the quarter, up 74 percent from one year ago, say California Building Industry Association figures.

Home building is a primary driver of the region’s economic engine, creating more than 110,000 local jobs, says Kent Aden, president of the Building Industry Association of San Diego and executive vice president of Otay Ranch Co.

The BIA reports residential building permits have generated $3 billion or more in direct construction value every year since 1999. On top of that, development impact fees of $16,000 to $50,000 per new home fill government coffers. At an average of $20,000 per home, with 12,000 homes expected to start construction this year, that’s $280 million in tax collections for local government.

The fees and taxes that builders pay ultimately, of course, are passed on to the home buyer. The fee that builders say is particularly onerous is the storm water pollution prevention permit enacted Jan. 1 by the Regional Water Quality Control Board. Aden says not only is the permit misdirected — to new home buyers — but so is the sediment the prevention plan seeks to deal with on each new home site.

“The whole concept that you have to clean the storm water on each individual lot just doesn’t make any sense,” he says. Aden estimates the storm water permit has added between $7,000 and $9,000 to each new home in South County’s Otay Ranch. The BIA is in litigation with the state over the permit.

In the city of San Diego, a new fee for affordable housing eventually will extract $5,000 from the sale of each 2,000-square-foot new home.

The framework of new building restrictions and mortgage interest rates that shift on the wind can be precarious, even when new construction is sturdy. With state and local budget shortfalls, Aden is wary of even more fees coming.

What worries Russ Valone, president of MarketPoint Realty Advisors, is that a 5.5 percent mortgage interest rate can’t stay at its historically low level forever. His concern especially is directed at the future move-up market. “Does it take away from the potential market opportunity a couple of years from now?” he wonders.

“If the interest rate (moves back to) 8 percent, it’s going to be more difficult to get someone to step away from their 5.5 percent interest rate. Maybe the mortgage should be tied to the house and not to the borrower.” Valone says such loans could carry over. “These are the kinds of mortgage instruments we’re going to need to get people to move up three to five years from now.”

In the meantime, people are buying now. Valone says the Highway 78 corridor in the North County has topped the county in new home sales so far this year, with 748. South County is second at 718.

At Newland Communities’ 2-year-old, master-planned 4S Ranch in Rancho Bernardo, nine builders have models from the high $300,000s to more than $800,000. The La Jolla-based national homebuilder also is developing Paseo del Sol, a master-planned community in Temecula, just over the Riverside County line. It will encompass about 3,200 homes that are priced from the high $200,000s to just under $500,000, says Gina Nixon, Newland’s regional marketing director.

Is the drive to another county worth it for a San Diegan? “Our buyers are very value-conscious,” Nixon says. “A value shopper is going to weigh what they can get in Temecula. It’s a quality of life choice.”

Riverside is a growth market for the San Diego division of KB Home, which caters to entry-level and first-time home buyers. “You figure on average Riverside County is $100,000 less than inland North County and hundreds of thousands less than coastal North County,” says Michael Harris, marketing manager for KB Home, which has houses starting in the low $200,000s there.

“We’ve opened 14 communities just since the beginning of the year,” Harris says. “The biggest impediment is not being able to open our communities quick enough.” The division sold 1,000 homes last year.

Increasing even faster than detached single-family homes are attached condominiums. Sales in San Diego have moved from fewer than 350 sales a quarter in the late 1990s to 1,179 just in the first quarter of this year, reports MarketPoint. Attached housing now constitutes the majority of new residential construction in Downtown, Hillcrest, Mission Hills and Middletown.

MarketPoint counts condominium conversions as new homes when they turn from for-rent to for-sale housing. Conversions have grown from an annual average of 243 between 1996 and 2001 in San Diego to 619 in 2002 and 618 in the first quarter of this year alone.

“As difficult as it is to produce affordable housing, it looks like a huge market in condo conversion,” says Valone. He denies that conversion just takes away an apartment from a renter. “You’re not taking an affordable unit out of the marketplace; you’re providing an entry-level opportunity to people from a lot of other apartments.”

Aden agrees the condominium again is gaining popularity as a transition toward eventually owning a single-family home. “Slowly but surely we’re starting to get back into the market. It’s been so underbuilt,” he says.

He adds that without more attached housing, the only step-up choice for too many people who want to become home owners is to face the daunting prospect of going straight from paying rent on an apartment to making mortgage payments on a $350,000 detached house.

Otay Ranch has opened six projects by three builders this spring, and two of them are attached duplex models. Prices in the master-planned community range from the $300,000s to $600,000s.

Aden says the monthly payment on attached housing is comparable to rent because of the low interest rates. And therein lies some trepidation. “Some of our builders have over 500 people working on the next phase (at Otay Ranch). If mortgage rates go up, they may have 300,” he says.

“The supply problem dwarfs the interest rate. If you can’t get enough housing built, the prices go through the roof,” Aden adds. “We’re concerned about the continued lack of reception on the part of our elected officials on the lack of housing supply. That directly affects the affordability issue. When it comes down to it, our government controls the amount of housing supply that is brought to the market.”

Valone says growth must be managed, not limited. “We used to have smart growth in San Diego,” Valone says. “The only way we can accommodate growth is to intensify the urban core. We need more density. There’s nothing wrong with building 30 units to the acre to provide housing that’s geared to hard-working families.”