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California Buyers’ Market Expected to Fade as Year Progresses
Housing activity in California will be especially slow during the current business quarter, according to the California Building Industry Association’s 2007 forecast, as builders finish the process of selling their excess inventory.
But construction should pick up later in the year, reaching levels that are fairly healthy from a historical perspective without necessarily answering the state’s growing need for more affordably priced housing.
Following an unsustainable and “frenetic” pace during the recent boom, “we are returning to a normal market,” said CBIA Chief Economist Alan Nevin. The 155,000 to 170,000 housing starts forecast for the state this year “will be more than any year from 1991 to 2001 and could exceed production levels from 1990 and 2002 as well,” he said.
The lower production level is not good news for prospective home buyers, however, who have been priced out of the market by high prices, which in turn are being driven by the abuse of environmental laws to delay or block new residential construction, constraints on available land and unnecessary government regulation.
“We need to be building about 240,000 new homes, condos and apartments a year to meet the need for housing,” Nevin said. “The problem is that we need new homes in all price ranges, and given the ever-rising fees and constraints on housing, it’s all but impossible to meet the need in the entry-level market, where the need’s the greatest.”
Between 110,000 and 120,000 single-family homes are forecast to be started in California this year, Nevin said, roughly the same as last year, but down from 155,000 in 2005.
He also predicted that housing prices will remain soft to stable in most markets.
“We are already seeing signs of price stabilization as builders in some markets have sold most of their standing inventory,” Nevin said. “We expect that trend to accelerate after the first quarter. Because there’s still excess inventory, there are still significant concessions, which we expect will drop considerably later in the year. In other words, now is a great time to buy.”
Nevin said that builders can expect to see some relief in construction costs this year, as well as a reduction in land prices in most metropolitan areas.
The inventory of land held by the public home builders has increased from a four-year to an eight-year supply in the past three years, he said in his forecast. “Some of those parcels will have to be remarketed. To that end, there will be accelerated opportunities for smaller builders to obtain land at prices that are almost palatable, both in the suburban and urban areas.”
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