Vibrant recovery is building

Published: Monday, Jun. 17, 2013 - 12:00 am | Page 1A
Last Modified: Monday, Jul. 28, 2014 - 8:14 am

During the downturn, new home construction plummeted along with jobs and personal incomes. Today, a major forecast for the Sacramento region suggests these measures of economic health are poised to rise together over the next four years.

Home building, an economic powerhouse in the region when it's in full swing, will return in force, rising to levels in line with population growth by 2017, according to the latest forecast by the University of the Pacific's Business Forecasting Center.

But the upswing in housing is unlikely to turn into another bubble, said economist Jeffrey Michael, head of the business forecasting center. The massive price inflation of 2004 and 2005 was fueled by easy credit and exotic mortgages.

"There'll be nothing like that this time around," Michael said.

What he and others do expect is a home building upturn based on fundamental factors such as employment and population growth and an eventual influx of Bay Area residents seeking affordable housing.

In recent months, Sacramento's new home market has shown strong growth in pricing and sales. Builders retain a sense of caution based on the hard lessons of the downturn, when construction came to a near standstill and thousands in the building industry lost their jobs.

"You don't want to overcorrect on the upside," said John Norman, chairman of the North State Building Industry Association. "You've gotta take one step at a time."

Still, Michael Strech, president of the North State BIA, said most builders agree the new home market is on track to recover.

"Collectively, the industry feels very confident that demand will continue and that this is a sustainable recovery," Strech said.

The latest projections from UOP's Business Forecasting Center provide a basis for guarded optimism.

Its May report for the four-county Sacramento region predicted sizable job growth over the next four years, along with falling unemployment. Personal incomes, adjusted for inflation, will eventually rise again at a rate faster than during the boom years, it said.

And population will increase by rates from 1 percent to 1.6 percent annually. In a region with about 2.2 million residents, that means adding 22,000 to 35,000 people a year.

Demand from those newcomers will help drive single-family housing starts from a low of about 2,000 a year in 2011 to a historically healthy level of 11,500 annually by 2017, the center predicts.

Michael said he also expects that many families who doubled up in the recession will strike out on their own and seek newly built homes.

"Household formation has been slower than what it might have been because of the economy," Michael said. "As it improves, we should see people moving out of their parents' houses."

Less tangible aspects of human psychology will also contribute to the resurgence of new home construction, including pent-up demand and growing consumer confidence, builders said.

"We're seeing nearly 40 percent of our buyers coming out of rental situations," said Chris Cady, Central California division president for KB Home. "That signals to me their confidence level is up, and they're ready to make that purchase decision."

As home prices rise, and current homeowners regain equity, many will move, industry leaders said. Some might need a bigger house because their families have grown; others will want to downsize because their children have left.

"There are people stuck in homes," Norman said. "They've been waiting. Their life has changed. They want something different. Now they're free to make other choices."

Nearly 26,500 people in the region regained equity in their homes in just the first few months of this year, according to a recent report from CoreLogic, an Irvine-based data firm.

Last week, real estate information firm DataQuick said the median price for resale homes in Sacramento County rose a stunning 42 percent in the past year, from $160,000 in May 2012 to $227,500 last month.

New home prices have been on the rise, too. In Placer County, a prime home building area, the median sale price of new homes rose in May to $378,500, up 23.5 percent compared with the same month a year ago.

The supply of new housing remains constrained by the availability of buildable lots and the time it is taking builders to restart operations. Many curtailed construction during the housing collapse. Now they are scrambling to catch up.

One thing that hasn't happened yet is a major influx of Bay Area residents seeking more affordable housing. Past migrations from the Bay Area have fueled housing booms.

Prices are rising rapidly in the Bay Area, too, experts noted, and unemployment is falling.

The difference between the pricier Bay Area market and the Sacramento market will eventually lead to a wave of new homebuyers, said David Ragland, senior project manager with Granite Bay Development. "It's a perfect storm."

Call The Bee's Hudson Sangree, (916) 321-1191.

© Copyright The Sacramento Bee. All rights reserved.

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