State's new-home construction to shrink

By: ANN PERRY - Staff Writer | Thursday, May 31, 2007 7:57 PM PDT ∞

NORTH COUNTY ---- The high price of gas could be putting the brakes on California's new-home construction.

A California building industry group said Wednesday that home construction starts statewide could drop by as much as 13 percent from its initial forecast for the year 2007 ---- due in part to strains on commuters in Riverside and San Bernardino counties.

The California Building Industry Association said that based on building trends for the year to date, it reduced its annual estimate from a range of 155,000 to 175,000 home starts, to a range of 135,000 to 155,000.

Despite this anticipated slowing, the association did not adjust its projections for construction employment, saying that the state would add 180,000 to 210,000 total jobs in 2007. It said that new-home construction is only one part of the industry and that "the rest of the construction industry is healthy."

For San Diego County, the forecast for housing starts was reduced from a range of 10,000 to 12,000, to a range of 9,000 to 10,500. But the biggest decline forecast was in Riverside County: from a projected 25,000 to 28,000 new-home starts, to 15,000 to 17,000.

That projection is driven by economic strains on homeowners in Riverside County, according to a report by Alan Nevin of San Diego, chief economist for the association. Many workers in San Diego County live in southwestern Riverside County, where homes are more affordable.

Nevin said that the rise in gas prices makes homes in the two counties less attractive to buyers who had previously been willing to trade off a long work commute for less expensive housing. He noted that many homeowners commute 1 1/2 to two hours daily, and in some households, there are two working members who both make long commutes.

The recent hike in gas prices decreases home purchasing power for commuters by $40,000 to $50,000, Nevin estimated. "Thus," he wrote in the report, "the savings on their mortgage payments originally gained by buying in Riverside/San Bernardino County quickly dissipates."

Nevin lowered the forecast from 25,000 to 28,000 for new-home starts in Riverside County, to 15,000 to 17,000.

Another reason that new-home construction in Riverside is taking a hit is the soft market for resale homes, Nevin reported. Most new homes are sold to buyers moving up from another home. These move-up buyers can't get the prices they wanted and the equity needed to buy new homes.

The anticipated declines will be mainly among single-family homes and not in the multifamily sector.

The association said that it routinely revises its projections midyear.

Contact Business Editor Ann Perry at (760) 740-5444 or aperry@nctimes.com.

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