California Sees Buy-Now Market Ready to Wind Down
Builders and housing professionals assembling in San Francisco last month for the annual PCBC were sharpening their marketing skills not only to work down their inventories but also in preparation for an upturn, which may be almost just around the corner, while leaders of the California Building Industry Association (CBIA) were busy conveying the message to prospective customers that the state’s buyer's housing market is winding down.
“Already there are indications that the slowdown that has hit different parts of the state at different times is stabilizing,” said Wes Keusder, CBIA’s chairman.
In radio ads currently being aired around the state by CBIA and its affiliates, Keusder said that builders are sending out a buy-now message “that sales prices and incentives being offered today by builders won’t last forever and that the historically low interest rates, which make it more affordable to buy now, could easily go up in the future.”
(To see the information that is being provided to prospective home buyers by the California builders, click here; www.cahomeownership.com.)
In his midyear housing forecast for California, Alan Nevin, CBIA’s chief economist, attributed the current softness in the state’s housing markets “primarily to the continued hesitancy of potential home buyers to invest in new homes, thinking that prices will be reduced and better deals lie ahead.”
But Nevin warned that the market is unlikely to get much better for buyers than it is now because “home builders have reduced their inventories of unsold homes, for the most part, and no longer have the need to exhaust those inventories. Thus, the supply will match the demand.”
Nevin forecast that the single-family sector will begin to gradually accelerate throughout the summer and then plateau for the balance of the year in most parts of the state.
The state’s 2007 housing starts forecast has been revised downward from 155,000 to 175,000 to between 135,000 and 155,000, Nevin said, primarily because of a larger than expected decline in production in the Inland Empire and Central Valley this year, where resale are soft and record-high gasoline prices have added significantly to the cost of lengthy commutes.
He is now forecasting that there will be 90,000 to 100,000 single-family homes started in the state this year, compared to a range of 110,000 to 120,000 forecast in January.
With the state’s population and job base growing at a healthy clip, lower production statewide is not especially good news for prospective home buyers struggling to buy their first home, Nevin pointed out.
“We need to be building about 240,000 new homes, condos and apartments a year to meet the need for housing,” he 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.”
Keusder said that the underlying demand for housing in California remains “incredibly strong,” but added that fees, development restrictions, growth control policies, design requirements, inclusionary zoning ordinances “and all the other things that make builders pull their hair out” have ruled out entry-level product in most parts of the state.
“The biggest problem for years has been the fact that cities and NIMBYs make building difficult,” Keusder said. “Entitlements take years and even decades; zoning notoriously favors NIMBYs. As a result, the price for lots on which you can actually expect to build homes in a reasonable amount of time has skyrocketed because of the housing demand, and prices aren’t dropping much even now.”
He added that, “It doesn’t take a math whiz to figure out that if the lot costs $150,000 and the fees are between $50,000 and $100,000, that you can’t really build a $200,000 house in this state anymore.”
The CBIA has been supporting legislation that would require cities to reduce fees and zone more land for housing so that they could meet their housing needs for all income levels over the next five years.
“By not building the housing to meet our population growth, we are constraining the opportunities for safe, affordable rental and homeownership housing for the people who are critical to the vitality of our communities — including teachers, firefighters and service-sector workers — among many others,” Keusder said.
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The simultaneous Webcast of the Construction Forecast Conference — Spring 2007 held in Washington, D.C. on April 26 is available for purchase for the next three months.
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To purchase the Webcast, visit www.nahb.org/cfcwebcast.
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