With banks selling foreclosed houses at bargain prices, unemployment rates soaring and mortgage lending standards tightening, most builders say they can't lower prices far enough to attract buyers.
So most of them have stopped building, causing home construction to shrink to the lowest levels in more than 50 years.
Here are the facts:
Only 97 residential building permits were issued in Modesto last year, which was about 7 percent of normal. During the past 40 years, the city has averaged about 1,300 permits annually.
Stanislaus County's single-family home building permits plunged about 90 percent in 2008 compared with the 2005 building boom peak. Just 464 permits were issued last year, and builders predict there will be only 430 this year.
At the current sales rate, there are enough developed lots to last nine years. Stanislaus, Merced and San Joaquin county builders have spent millions on streets, curbs, gutters and grading for 13,000 lots that are sitting empty in unfinished subdivisions.
About 820 completed new houses were vacant and waiting for buyers in the three counties as of December, and about 500 others were under construction. Back during the boom, builders had 5,500 homes under construction at once and practically everything they finished sold immediately.
New home sale prices fell to a median $245,500 for those that closed escrow in Stanislaus during December. That was nearly 44 percent below the $435,250 median new home sales price in December 2006.
"You can't lose that kind of revenue and still have a profit," said Joseph Anfuso, who runs Florsheim Homes, which has been building in the valley for 25 years. "Now we're just working to pay our bills and stay cash-flow neutral. Profit is out the window."
Florsheim sold "a couple" homes in January at its two remaining Manteca developments, and Anfuso said his starting prices have dropped to $240,000.
"To survive, you have to pare back your expenses, cut down advertising, let your employees go and ride it out," Anfuso said. During the past two years, he's reduced his staff from 55 to 11. Florsheim also drastically scaled back its developments. "We got out of Turlock, Ceres and Lathrop, and we mothballed our Modesto project."
Demand for new homes faded
Demand for new homes faded as the real estate market in the region collapsed in late 2005 amid a glut of subprime loans. As foreclosures soared, credit tightened and the economy weakened, the new home market dried up.
Now every builder is struggling to survive, said Sharon Hope, the Hanley Wood Market Intelligence research specialist for the Northern San Joaquin Valley.
"Everyone that's keeping their head above water has had to change their product line, reduce the square footage of their homes and go back to basics," Hope said.
Big, expensive tract houses aren't selling, she said, particularly because large home loans are very hard to get, even for those with good credit.
Hanley Wood, which provides research for the building industry, lists 94 unfinished subdivisions in Stanislaus, 75 in Merced and 121 in San Joaquin.
But Hope said many of those developments have been repossessed by lenders or abandoned by builders. She said some still have model homes, but they're rarely open.
"These poor builders are just falling apart," Hope said. "Their sales staffs are mostly gone, and about the only time you can catch an agent is on the weekends."
Some vacant houses have been pulled off the market completely.
Modesto's Thomas Terrace development, for instance, went belly up in 2007 along with its builder, Pacific Pride Communities. It left nine finished houses -- many of them with more than 3,000 square feet -- and about 10 lots sitting empty. They remain that way two years later.
Lafferty Homes also got into financial trouble in 2007 and walked away from one of its unfinished Oakdale developments. Crosswinds Communities did the same with two Merced developments. Anderson Homes had so many unsold homes in Manteca and Los Banos that it auctioned them off to the highest bidder.
Then, last summer, William Lyon Homes gave up trying to sell at its massive Modesto development, leaving its Falling Leaf project with less than half of its planned 314 homes built.
To stick it out, some builders have drastically slashed prices.
When Taylor-Morrison's Carriage Lane project opened the summer of 2007, its 1,127-square-foot model had an advertised base price of $271,990. Now it's just $139,990. That's a nearly 49 percent reduction.
'A no-growth market'
Upscale homes also have scaled-down prices. Pam Franco opened her luxury Heirloom Collection development on one-acre lots south of Atwater in 2006 with a base price of $640,000. Now her 2,400-square-foot houses can be had for less than $369,900.
"We sold just three houses last year," said Franco, who is starting her second year as president of the Building Industry Association of Central California. "It's tough. We all of a sudden became a no-growth market."
The market collapse also is tough on the building association.
"We were pushing 350 members," Franco said. "We're down now to our core members with about 45 builders."
Beyond hurting developers, the demise of construction is devastating the region's economy and employment opportunities. Unemployment soared to 13.6 percent in Stanislaus in December -- about double what it was during the building boom.
When housing was hot, Riverbank's Monschein Industries employed 406 people to craft cabinetry and countertops. Now only 72 remain.
"We had to lay off some people who had worked for us for 28 years," lamented Michael Monschein, whose father started the company in 1964. "No one has seen anything like this before."
'They have no money left for me'
Not only have developers stopped ordering cabinets for new subdivisions, but Monschein said some of them never paid for the cabinets already installed.
"Us poor subcontractors. We're the ones stuck with the bills," said Monschein. He noted how when builders go bankrupt, banks collect their debts before other creditors. "I've already paid my workers, my vendors and my suppliers. Then builders say they have no money left for me."
California construction work has gotten so scarce that Monschein last week traveled to Colorado to secure a cabinet order for a custom home. He's bid jobs in Wyoming, too, just to keep his operation going.
Last year Monschein said his company installed $4 million in equipment to enable it to be "green certified" and to meet California's strict environmental standards.
"We paid cash for everything, so we will survive," Monschein assured.
But the housing slump won't end anytime soon, analysts warn.
"The Central Valley is not immune to the slowing national economy and the region's housing market is feeling the effects," said Greg Gross, director of Metrostudy's Central Valley division.
Metrostudy provides market research to the housing industry nationwide.
"Would-be home buyers have taken a wait-and-see attitude," Gross said. "Others have lost interest or the ability to purchase a home. With regulation in the mortgage industry, buyers now have to prove their ability to repay their mortgages. Higher credit scores and more stringent documentation are required."
Metrostudy forecasts the Northern San Joaquin Valley's housing market will "decline further through 2009 and most likely into the second quarter of 2010."
Because few new homes are being built, Gross said, the inventory of unsold new homes is declining: "This is an important step if we expect housing prices to rise during the next two years."
The California Building Industry Association is pushing lawmakers to start offering state and federal home buyer tax credits to reinvigorate the housing market. Home construction creates jobs, which would stimulate the economy, builders contend.
Construction jobs vanished
A study released last summer by the Sacramento Regional Research Institute calculated how many jobs are linked to California housing construction. For Stanislaus, it figured there were 5,363 construction-related jobs in 2006, but that fell to 3,767 jobs when building declined in 2007.
Because about one-third as many homes were built in 2008 as 2007, construction-related jobs in Stanislaus might have fallen below 1,300.
Builders suggest that with the government's help, increased new home construction could lead the country out of recession.
Some experts think there are too many homes already.
"There doesn't need to be any new construction (in the Northern San Joaquin Valley). Migration is leaving and the bank-owned properties can be purchased for well below the builder's cost," said Bruce Norris, a real estate investor and lender who leads California investment seminars.
"This silly notion that builders are not building enough new homes to keep pace with demand is absolutely wrong and very harmful to the reputation to those who keep saying it," Norris said.
Bee staff writer J.N. Sbranti can be reached at firstname.lastname@example.org or 578-2196.