HOUSING: Local builders teeter under economic woes

Bankruptcies, foreclosures under way as permits plummet

By ZACH FOX - Staff Writer | Tuesday, November 25, 2008 4:09 PM PST ∞

Sparse new home sales, falling real estate prices and just a trickle of lending from the nation's banks have put several regional home builders out of business and left one major builder teetering.

Barratt American, a large, private builder based in Carlsbad, might soon be forced to file for Chapter 11 bankruptcy protection because of a loss in funding from its lender, said Michael Pattinson, president of the company.

So far, 11 Barratt American projects around the region have fallen into foreclosure. The company had major developments in Escondido and Leucadia, with some projects throughout Riverside County. The list of local bankruptcies includes smaller builders Brighton Homes and Forward 8 Builders.

Pattinson said much of the fault lies with banks unwilling to lend money despite capital infusions from the federal government.

"Until the banks do their jobs, the economy is going to deteriorate and everybody is going to have a miserable Christmas," he said. "We need to get on regulators and encourage them to get the banks to do their jobs. It's the government's money, and they're not lending it."

But builders would face tough times regardless of lending activity.

Even though foreclosure sales have boomed as of late, new house sales continue to languish. Builders have slashed prices to compete with cheap prices for bank-owned, used homes. Several large builders say they have sold houses below the cost of construction.

A report Tuesday by the California Building Industry Association showed that building permits, an indicator of future home builder activity, reached a record low.

The annualized rate sunk to just 46,300 permits across California, the lowest since the association started collecting data in 1976.

San Diego County permits were down 25 percent from a year ago to 4,777 units year-to-date through October. Riverside County building permits fell 53 percent to 5,210 permits during the same time.

Such struggles have led builders to form coalitions and lobby Congress and local government officials to pressure banks to open credit lines, reduce development fees and inject more economic stimulus.

"Obviously, there's more that needs to be done," said Mike Castillo, spokesman for the state's building industry association. "There needs to be another tax credit to buy homes because the tax credit they have passed doesn't appear to be stimulating the market."

Further, the numbers of houses sold might shrink during the next few months as fallout from turmoil in the financial sectors has shaken consumer confidence.

"I can't see a light at the end of the tunnel yet," said James Hamilton, an economics professor at UC San Diego. "I know there must be one eventually, but I don't see one yet."

As for Barratt American, Pattinson, the company's president, said Barratt still needs to decide whether it needs to file for bankruptcy protection. One large project in Santee, known as Fanita Ranch, is not in foreclosure, he said.

Whether the company needs to turn to Chapter 11 and whether it keeps the Santee project all remain up in the air, Pattinson said.

"In this world we live in, everything is in jeopardy," he said. "If this economy of ours continues to deteriorate at this rate, who the hell knows ... but our intention is to keep that property."

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com. Read his blog, "On the Realside," at bizblogs.nctimes.com.