The Northern San Joaquin Valley's new home market is dreadful and may not stabilize until 2012, home appraisers were warned this week during a conference in Modesto.
"The new home sales rate is nothing short of dismal," lamented Dean Wehrle, vice president of Sullivan Group Real Estate Advisors.
He said Stanislaus, Merced and San Joaquin county subdivisions are averaging one sale per month. At the peak of the market in 2005, each subdivision was selling on average about eight homes per month.
"Builders can't survive selling one per month," he said. "It's brutal."
Wehrle shared the grim news at the Appraisal Institute's Northern California spring conference. He said builders are barely holding on as they consider drastic price drops, selling off vacant lots or "mothballing" developments until the economy turns around.
"In 2008 it's going to get even uglier," Wehrle warned. During 2003, 2004 and 2005, more than 13,000 new home building permits were issued each year in the Northern San Joaquin Valley. But he projected that 2,718 permits will be issued this year, which would be the lowest number in more than a decade.
New home prices have dropped dramatically to lure buyers, but Wehrle said homes in the region still cost far too much for most residents. In 2006, median new home prices in the three counties peaked at more than $458,000, but now they're down to about $360,000.
"The homes still are about $62,000 above where they should be," said Wehrle, who showed the appraisers detailed price trend charts. He said it was "outrageous" how the region's home prices more than doubled from 2000 through 2005, rather than appreciating at a more "natural" 6 percent a year.
Though home price have fallen since 2005, Wehrle's charts demonstrated how it will take until the end of 2011 or early 2012 for the valley's housing market to stabilize enough to bring it in line with builders' current median prices. He said that means builders must continue dropping prices or stop building.
The supply of new-home lots far outstrips demand.
In the three counties, there are 25,753 approved lots ready to build on, according to statistics from Hanley Wood Market Intelligence.
That includes about 6,200 in Mountain House, 4,300 in Santa Nella, 3,100 in Stockton, 2,100 in Los Banos, 2,100 in Manteca and 1,800 in Merced.
Only 214 approved lots remain in Modesto, according to Hanley Wood, but the 10 subdivisions still being developed in the city sold about 74 new homes during the first four months of this year.
Sales have been so slow throughout the three-county region that Hanley Wood said the inventory of approved lots is enough to last until 2012.
"A lot of large new-home communities are going to go into mothballs for a while, then try to time the market and come back when (sales pick up)," Wehrle said. That's because there's "zero appetite for acquiring finished lots" so developers can't find builders to buy excess inventory.
Some "vulture firms" are willing to purchase such lots, but "they only want to pay 20 to 30 cents on the dollar," according to Rick Botelho, senior vice president of The Ryness Co., which expects to build more than 5,000 homes nationwide this year.
Botelho, who also spoke at the appraisers' conference, said not all developers are suffering equally. He handed out "value ratio" graphs that showed how lower priced subdivisions are outselling high-priced ones.
"If the price is high and the square footage is high, there's danger," Botelho cautioned. He said new home developments that are priced correctly, have financing available, are in good locations and have desirable floor plans and features are doing well.
"When a house has a floor plan that looks big and spacious, people are willing to pay more for it," he said.
But the growing number of builders, especially in the Bay Area, who are auctioning off their homes to the highest bidders are pushing down prices at all subdivisions, Botelho said, and buyers want builders to match auction prices.
"The consumer is becoming more and more sophisticated financially," Botelho said. "They look at housing as an investment."
Builders also must compete with the almost-new houses that have been foreclosed on and are put for sale at drastically reduced prices.
Foreclosed houses also have dramatically depressed prices in the resale home market. But competition to buy those bank-owned properties is picking up, according to Phil Schmidt, one of the top agents at PMZ Real Estate.
"We're busy. The phones are ringing. People are coming to open houses. We just have to get more people off the dime and buying," Schmidt said. "I know people who are renting who can afford to buy a home, but they're just sitting and waiting."
Most of those who are buying are opting for reduced-price homes that have been foreclosed on or are at risk of foreclosure, Schmidt said. But those deals take a long time to close escrow because they often involve mortgage holders from across the country or overseas.
"It's miserable what they put you through when trying to buy a foreclosed home," Schmidt said. "If they were smart, lenders would cooperate with a short sale (offer from buyers before repossessing the home) and forgo the foreclosure."
Bee staff writer J.N. Sbranti can be reached at email@example.com or 578-2196.