Builders' group remains optimistic

By: ZACH FOX - Staff Writer
State association forecasts rebound in home construction in '08 | Thursday, January 3, 2008 8:16 PM PST ∞

The state's housing market will modestly rebound in 2008, leading construction companies to build more homes and condominiums, according to a forecast released Thursday by the California Building Industry Association.

The forecast runs counter to several other predictions that call for construction numbers to decline over the year and the housing market to continue its recession. The building association's economists said he thinks the worst of the housing downturn, within the state, is over ---- in part because population growth has outpaced new home construction.

"We believe California has weathered the subprime storm of 2007, the market has almost corrected, and 2008 provides the opportunity to move forward," said Alan Nevin, chief economist for the association and author of the forecast.

The building association's forecast estimates that permits issued for new home and condominium construction statewide will increase 10.5 percent to 128,400 in 2008. By contrast, UCLA's Anderson forecast, produced in December by the university's economists, predicts the number to drop 8.6 percent to 106,300.

The building association's sunny outlook has not held up in past years.

Over the last two years, Nevin's forecasts have overestimated the number of actual building permits by about 40,000. For example, Nevin predicted between 155,000 and 170,000 permits in 2007. The building association estimates permits for 2007 to hit about 116,250.

The expectation for new construction is not expected to hold true for North County, said Nevin, who is also the director of economic research for San Diego-based MarketPointe Realty Advisors.

"In North County what you're seeing is virtually no new production. It's not a matter of slashing prices; it's a matter of slashing production," he said. "In North County, you'll see homes built on a custom-only basis nowadays."

The forecast predicts San Diego County single-family home permits on the whole to increase 14 percent to 4,000 in 2008 after a 26 percent fall in 2007 from the previous year.

Michael Crews Development, an Escondido-based builder, expects to build homes in 2008, but fewer than they did in 2007, said Mark Connal, the company's director of sales.

Michael Crews Development builds higher-end homes, mostly in North County.

"It comes down to nobody's going to pull permits until inventory shrinks," Connal said. "And we have been selling. Are we selling as fast as we want to? No. Are we selling for as much as we want to? No. But we're selling."

The forecast projects that Riverside County's permit level will rebound to about 13,000, a 24 percent jump that would exceed what's expected in most other counties.

Riverside County's construction industry was among the hardest hit last year; local governments there issued just 10,500 permits for single-family homes, continuing a dramatic slide from 20,700 in 2006 and 30,000 in 2005. Construction of shopping centers and other commercial buildings helped to offset that decline through 2006, but those numbers fell noticeably through most of last year, according to industry data.

The economists expect falling land prices in Riverside County to encourage builders to construct smaller homes that will sell for as little as $100,000. Those homes will likely be built east of Temecula and Murrieta, Nevin said.

"There is an amazing amount of money sitting out there waiting to buy lots that drop in value," Nevin said.

It may not need to wait much longer, according to The Hoffman Co., an Irvine-based land brokerage. In the French Valley area east of Murrieta, where development boomed in 2004 and 2005, the average price of finished 7,200-square-foot lots fell to an estimated $115,000 last month from $240,000 in December 2005, according to a report the company published in mid-December. Lot prices elsewhere in southwest Riverside County fell 39 to 45 percent in the same two-year period, Hoffman reported.

Existing single-family homes sold for an average $375,000 in that area in November, down 22 percent from a year earlier, according to the North County Times' analysis of figures from a database used by local real estate agents.

The building industry's forecast predicts that construction will grow and housing demand will be strong in 2008 because population growth should outpace new homes.

Nevin said he expects the state's population growth, about 400,000 this year, to drive consumption and keep the economy from falling into a recession.

The building association report pointed to the gap between population growth and new housing as a reason for its push toward fewer government regulations, which, they say, would create more affordable housing.

"I think we need to take a look at skyrocketing so-called impact fees," said Ray Becker, chairman of the association. "From a builder's perspective, we have to solve the long-term barriers to housing construction."

Staff writer Chris Bagley contributed to this article. Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com.