Sacramento-area home starts fall 66 percent in March

Hurt by competition from cheaper foreclosed properties, new-home construction in California could be facing its slowest year in decades.

The California Building Industry Association said Friday that statewide housing starts in March fell 65 percent from a year earlier. The total of 4,713 starts made it the worst March for home building in California since month-by-month recordkeeping began in 1976, said association spokesman John Frith.

Home building is off 50 percent for the first three months of the year, and association economist Alan Nevin said the number of single-family homes built this year could be as low as 40,000. That would be the lowest since the association began keeping annual records in 1961. Construction of apartments and condominiums is holding up better.

Nearly 155,000 single-family homes were started in California at the peak of the housing boom, in 2005.

In greater Sacramento, housing starts in March fell 66 percent from a year ago, the association said. There were 318 homes begun in March.

Nevin said the construction slump is being worsened by the flood of repossessed homes that lenders are unloading at steep discounts. About half the home sales in the Sacramento area this year are repossessed properties, and the median sale price in Sacramento County of all homes has fallen 36 percent since the 2005 peak.

"We have a tsunami of foreclosures coming this quarter," Nevin said. Home building won't improve until the foreclosures have mostly run their course and prices firm up, he said.

Faced with low-price competition from the banks, home builders are choosing not to build, Nevin said. "The builders would rather sit with the land than give it away," he said.

Nevin said inland California is experiencing the worst of the construction downturn. Based in San Diego, he visited Sacramento recently and found the relative absence of construction activity appalling.

"Placer's still chugging along a little bit. But you look at Natomas and some of the other areas, it's brutal," he said.

John Schleimer of Market Perspectives, a Roseville-based consulting firm, agreed with the association's prediction of a dismal year.

"I don't think 2008 is going to hold too much hope in California," Schleimer said. Not only are foreclosed properties hurting construction, but the overall weakness in the economy is playing a role, too.

"Job growth has basically stopped, and consumer confidence is still pretty rattled," Schleimer said.

Greg Paquin of the Gregory Group, a Folsom consulting firm, said home builders have little choice but to proceed cautiously. Instead of building 10 or 15 homes at a clip in a particular subdivision, "the builder won't pull the permit until he feels pretty darn secure that the buyer's going to move forward," Paquin said. "That makes it a one-off kind of thing."

The only comfort is that sales numbers are starting to pick up, albeit for repossessed properties at lower prices. "It's better than it's been the last three years," Paquin said.

Including apartments and condominiums, there were fewer homes begun statewide in March than in February, the building association said, suggesting there won't be a major rebound in construction this spring or summer.

The association cited the monthly statistics in renewing its call for legislation to aid builders and developers. Among other things, the association is sponsoring legislation that would streamline the approval process for subdivisions, which it believes would accelerate the market recovery.

The collapse of the housing market has eliminated about 10 percent of the state's construction jobs since last year and driven some home builders out of business.

Prominent Sacramento-area home builder Dunmore Homes Inc. is being liquidated, and John Reynen, co-founder of another top-line Sacramento home builder, Reynen & Bardis Communities, has filed for personal bankruptcy because of business loans he personally guaranteed.

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