Real Estate

Housing recovery predicted to be slow in valley

The Northern San Joaquin Valley's housing market will be one of the very last to turn around in California, a building industry economist predicted Thursday.

Alan Nevin, chief economist for the California Building Industry Association, forecast a modest recovery in 2008 for the state's new home industry. But he said prospects for builders in Stanislaus, San Joaquin and Merced counties are not so rosy.

Nevin acknowledged that the three counties have some of the highest foreclosure rates in the nation and their new home sales were so slow in 2007 that numerous builders left the region or stopped construction altogether.

"It's going to take a very long time for builders to get the confidence to build again" in the Northern San Joaquin Valley, Nevin said during a telephone news conference.

Several of the region's remaining builders agreed with Nevin. They are bracing for another difficult year.

"2008 will not be very good for home builders," said Pam Franco, the new president of the Building Industry Association of Central California. She said there are so many resale homes on the market that builders have had to cut prices to compete, which has dramati-cally lowered profits.

"When you can't produce the profits, you don't build in the area," said Franco, explaining why so many large construction companies have left the region or scaled back development plans. She said those departures may create more opportunities for small local builders, such as the company she owns with her husband, Ray Franco.

"We have low overhead, and we don't need a lot of sales," Franco said. To adjust to the slow market, her company "retooled our business plan and started building a smaller home."

Franco's Heirloom Collection semicustom houses on one-acre lots near Atwater had sold for as much as $850,000, but a new model will have a starting price of $449,500. She said that model will be "our loss leader, and its profit margin is substantially lower."

'Cater to the local buyer'

Other builders also are slashing prices to attract buyers.

Steve Mothersell, owner of SCM Homes in Modesto, said small starter houses he had been selling for $220,000 at Park Villas at Sherman Ranch in Newman have been reduced to $190,000. He has approval to build similar floor plans in Riverbank, with prices starting in the $170,000 to $190,000 range.

"Prices are back to where they should be in the Central Valley," Mothersell said. Homes being built now "cater to the local buyer and the local demographics," unlike the much bigger, high-priced homes sold a few years ago.

Mothersell said buyers should take advantage of the big cost cuts now, rather than waiting for home buying to regain popularity: "These opportunities will dry up in short order when the herd starts to move."

Nevin's written 2008 Economic Forecast, released Thursday, predicts "a modest turnaround in the housing market" this year in California.

"In the single family market, we anticipate a modest improvement in sales in those markets that are highly urban, such as San Diego, Orange County and the Bay Area. In those areas, where lots are not abundant, we forecast a 10 to 15 percent increase in sales in 2008, with prices holding steady," the forecast says.

But in regions with ample lot supply, including the San Joaquin Valley and the Sacramento area, Nevin forecasts "a major change in the home building mentality."

Nevin predicts lot prices will be reduced to more practical levels: "As a result, home builders will be able to build substan- tially smaller homes and sell them for substantially lower prices."

Statewide, "as a result of these massive shifts in home pricing in these areas, and reduced interest rates, home sales should increase substantially by the third quarter of 2008."

Nevin forecasts California "new home sales will accelerate in the second half of the year, leading to a 2008 single family total of more than 80,000" houses compared with fewer than 71,000 in 2007.

In the San Joaquin Valley, from Bakersfield to Stockton, he projects 17,000 homes will be built in 2008, compared with about 15,000 in 2007. That's less than half the 35,000 houses built in 2005 when the valley's building boom peaked.

Joe Anfuso, president of Stockton-based Florsheim Homes, said he doubts San Joaquin Valley builders will sell more homes this year than last year. Anfuso listened in on Thursday's news conference, and he said he agreed with Nevin's verbal predictions about housing markets in Stanislaus, San Joaquin and Merced counties being among the last to recover.

'A lot of negative sentiment'

"What's hurting us now is a lot of negative sentiment," said Anfuso, whose company is building in Manteca and Lathrop. "Buyers don't want to put money down now to build homes that won't be finished for five months."

Anfuso said buyers first want home prices and sales volume to stabilize so they can have confidence the market has hit bottom.

Local builders agree with Nevin about land prices dropping in the valley, which could lower the cost of future subdivision lots.

Builders who purchased raw land for development in 2005 were paying as much as $300,000 per acre in the Northern San Joaquin Valley, recalled Franco. She said the record-high land prices pushed up home costs, but land now is being offered for substantially less.

"We are shopping diligently for land deals," Mothersell said. "We see this as a 12-month opportunity to position ourselves for the next 10 years."

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

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