Custom home builders are floating on the greatness of 2002 and looking for a profitable 2003. The consensus is possible rises in mortgage rates and the threat of war have little impact in slowing the high-end market.

Pete Reeb of Reeb Development Consulting says it’s hard to track new custom homes in solid numbers because the buyer may wait between purchasing a lot and actually building the house. Russ Valone of MarketPoint Realty Advisors explains it is nearly impossible to capture statistics from this market because it is becoming more common for custom homes to be built from an existing home. “The rules are that you can take an existing house, tear down everything but one wall and rebuild it,” Valone says. “It gets classified as a remodel.”

Interest rates are not as important to this market as many of the customers are purchasing with cash or buying with a 75 percent down payment.

“Right now, in San Diego at least, most people still think it’s a pretty good time to buy a new home,” Reeb says. “The threat of war is out there, but it really has not deeply impacted the market place yet.”

Jonathan Reich, president of Zebu Construction in Fallbrook, says 2002 was a great year for custom homes and designer builders because of low interest rates. Zebu did six custom homes and 12 speculative homes, which kept the small firm busy. He expects to do about the same amount of business in 2003 but is keeping an eye on things. As soon as there’s a hiccup in the interest rate, he expects things to “drop like a rock.”

Francisco Mendiola, principal of CDGI in Downtown, expresses less worry. “People buying these homes have the money to keep buying regardless of the interest rates,” he says. “If there is a war, there will be a slowdown, but it won’t be because of the price. People will be careful. Uncertainty will slow things down.”

Mendiola is very optimistic. Last year his firm built three spec homes and six custom homes in La Jolla, Coronado, Alpine and Chula Vista. It takes nearly a year to complete one of these multi-million-dollar efforts and already CDGI has enough projects to match last year’s success. “The future looks pretty bright,” he says. “I hope it continues that way.”

Reeb doubts that war will be bad for San Diego’s economy. “Quite frankly,” Reeb says, “war is often good for the San Diego economy. We still have a pretty high presence of defense contractors and they benefit from a war. During the Vietnam war, that was some of the best years ever for the San Diego housing market in sales and appreciation.”

Back then, San Diego had some huge defense contractors. Like then, defense spending is at an all-time high and the economy is much more diversified.

— Maria L. Kirkpatrick