Tuesday, August 19, 2008

It's hang-by-the-fingernails time for area builders

By J.N. SBRANTI
jnsbranti@modbee.com

last updated: September 23, 2007 04:46:02 AM

These are tough times for Northern San Joaquin Valley home builders.

They've got too many homes to sell and too few buyers who want them. That's causing some builders to auction off houses at bargain prices and others to indefinitely postpone construction.

A couple of developers are in jeopardy of defaulting on construction loans, which has put their partly finished subdivisions in limbo. Others have turned over their empty houses to real estate agents and simply stopped building new homes.

Potential buyers disappeared as the real estate market deteriorated amid slumping sales, falling values, rising foreclosures and tightening up of credit. Consumers also are fretting about the economy, employment and expenses -- such as fuel and food.

"We're going to be lucky to weather this. It's hit us hard," said Bernie Heyne, vice president of Pacific Pride Communities.

The builder has halted construction at its Thomas Terrace development in Modesto while it renegotiates with lenders, leaving nine finished-but-empty homes. It's laid off two-thirds of its staff and put its Modesto headquarters up for sale. "We are pulling back," Heyne said.

So is Lafferty Homes, which has temporarily stopped building at one of its Oakdale developments; indefinitely postponed another Oakdale subdivision; and pushed back the timeline for a Riverbank project.

Lafferty recently turned over sales of its finished houses in Oakdale, Livingston and Lathrop to real estate agents, and slashed its asking prices. Some homes that had been priced above $600,000 have been lowered to the mid-$400,000s.

Owner Rick Lafferty said this is the toughest sales market he's experienced in his 24 years in the business: "I don't think builders can give much more."

But some builders are offering even bigger potential discounts.

Anderson Homes has agreed to auction off 59 houses in Manteca and Los Banos to the highest bidders next month.

"It's a very efficient way to reduce our inventory," said Craig Barton, Anderson Homes' chief financial officer. That's what his company needs because it built too many homes last year when sales were strong, then got stuck with empty houses when buyers disappeared.

40 percent drop in asking price

To lure back buyers, the opening bids for Anderson Homes will start about 40 percent below previous asking prices.

Example: Its Paseo West houses in Manteca, once priced at $460,898 could go for as little as $285,000, and Anderson's Teal Landing houses in Los Banos, once priced at $353,316, could go for $215,000.

Craig said his company "won't be making any money if we sell for the minimum bids," but the company is going to trust "buyers to set the fair market value."

The Kennedy Wilson Auction Group will manage the bidding. The last time that auctioneer sold homes in the Northern San Joaquin Valley was in the early 1990s during an economic recession and housing slump. In 1991, for instance, Kennedy Wilson sold 54 new east-Modesto houses in less than two hours.

"The last (down real estate) cycle we did many, many auctions," said Rhett Winchell, president of Kennedy Wilson. While such auctions re-emerged recently in Northern California, Winchell said, "we're talking to many other builders, including some in your area, who are interested in this."

Several of the region's builders are stuck with costly inventory they haven't been able to sell.

For instance: Dunmore Homes has about 15 empty houses in its Copper Creek subdivision in Merced, but it apparently has stopped all sales there. Last week, the company's Web site removed Copper Creek from its listings. Officials from Dunmore Homes did not respond to inquiries from The Bee about what's happening at Copper Creek.

But other builders willingly talked about how difficult it is to sell new homes these days.

Joe Anfuso, who heads Florsheim Homes, said the market is so bad his company has in- definitely postponed its Rose Way subdivision in Modesto. It hauled away its sales trailers from the Merle Avenue site last week.

Rose Way was a much anticipated development because it was to include 22 affordable units among 122 single-family homes. Those units, also called duets, were to be sold at below-market prices to median-income families who were to receive down-payment assistance through various government programs.

"But now doesn't appear to be the right time to bring any new product to market," Anfuso said. "We've got to ride out this downturn, then come back when we can be successful."

Anfuso said that since the current sales market is so uncertain,he would rather continue paying the loan costs on the vacant land than invest another $5 million or so to develop Rose Way.

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or 578-2196.

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