State New-Home Production Last Year Fell to Lowest Level in 25 Years, CBIA Announces
Despite continued downturn, CBIA economist believes signs of recovery are growing
January 30, 2008
SACRAMENTO – California single-family home construction in 2007 fell to the lowest level in 25 years as builders around the state dramatically ratcheted back production in response to a softer sales environment, the California Building Industry Association reported today.
According to statewide data compiled by the Construction Industry Research Board, permits for 112,300 new homes, condominiums, townhomes and apartments were issued statewide, down nearly 32 percent from 2006 and 100,000 units less than recorded in the most recent peak year of 2004.
While multifamily construction – both for-sale and rental properties – was down 21 percent, to 44,307, single-family construction dropped by 37 percent to 67,993, the lowest number of starts since the 51,160 recorded in 1982.
Despite the continued downturn, CBIA Chief Economist Alan Nevin said signs continue to point to a recovery in the new-home market later this year, especially after the Bush Administration and the bipartisan House leadership last week reached agreement on a housing stimulus package.
“It is now apparent that the federal government is coming to the rescue, and none too soon,” Nevin said. “The combination of declining interest rates, increasing the conforming loan rate and improvements in the FHA lending practices will lead to a more rapid recovery than initially anticipated.”
Nevin noted that a major increase in refinancing activity that is now under way is an important first step toward full recovery, and the tax rebate checks expected to be sent to most taxpayers later in the spring will help as well as both activities will bolster consumer spending. He said other signs of recovery should be apparent soon.
“The resale market is anticipated to pick up substantially in the next few weeks in California as the buyers who have been sitting on the fence return to the marketplace. Resales drive the new-home market. Typically, there are 4-5 resales sold for every one new home built in California. Therefore, the vibrancy of the resale market will generate demand for new sale housing. It is likely that we will see this situation materialize by the 3rd quarter, perhaps sooner.
“And because the inventory of new homes is low, builders will not have to offer major concessions to entice buyers into new homes. If there is one problem looming, it’s actually the scarcity of new product in most urban areas.”
According to CIRB, construction activity picked up in December compared to November totals, but much of the increase was attributed to builders obtaining permits before new, more expensive building codes went into effect on January 1. During the month, 3,487 single-family permits were issued, down almost 40 percent from December 2006 but up 11 percent from November. Multifamily permits dropped 46 percent from last December but increased by 15 percent over November, and the total permits issued fell almost 34 percent from a year ago to 7,220, which was up 31 percent from November.
During all of 2007, Los Angeles County recorded the largest number of housing starts, 20,228, down 23 percent from 2006. Riverside County was second, at 12,445, down almost 51 percent from the previous year, and San Bernardino County was third at 8,100, down almost 42 percent.
Outside of Southern California, Fresno County saw the largest number of permits issued at 4,985 – up almost 9 percent from last year. The only other major counties reporting an increase in housing starts were Santa Cruz, up 40 percent, and Monterey County, up almost 10 percent. Total production in each jurisdiction was less than 1,000 units, however.
CBIA President and CEO Robert Rivinius said the sharp drop-off in construction has severely affected the state economy and had a major impact on state and local government budgets. He said although the stimulus package should be a major boost to the housing market, it’s critical that the House and Senate quickly agree on effective legislation that can be signed into law.
“But besides that, state policy-makers can help as well, by quickly passing bills to make homes more affordable, such as making more land available, streamlining environmental regulations and controlling outrageous fees that can reach well over $100,000 per home or condominium,” Rivinius said.
“In addition, the Legislature should take immediate steps to help the industry begin to climb out of its slump, such as extending expiring subdivision maps and allowing payment of necessary and valid impact fees at certificate of occupancy.”
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The California Building Industry Association is a statewide trade association representing more than 7,000 businesses - homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals. A recent study determined that homebuilding generates approximately $60 billion a year to the California economy and creates an estimated 526,000 jobs statewide. More information is available on the Association's Web site, www.cbia.org.
The Construction Industry Research Board (CIRB) is a nonprofit research center established in 1974 to provide statistical information on the California building and construction industry. More information is available on the CIRB Web site, www.cirbdata.com.