Thursday, 26 January 2012

REAL ESTATE: Home building reaches record low

Responding to falling prices and stiff competition from foreclosures, home building activity in 2011 dropped to an all-time low in Inland Southern California, according to a report released Wednesday by the California Building Industry Association.

Statewide, 2011 marked the third lowest year on record for overall housing production. A record low in the volume of single-family home construction was only somewhat offset by an increase in the construction of multi-family homes, particularly apartments, which analysts said reflects the increased difficulty in qualifying for mortgages, the weakened economy and a loss of consumer confidence.

In the Riverside-San Bernardino-Ontario metropolitan statistical area, home construction activity last year declined 18.6 percent from 2010, based on building permit data compiled by the Construction Industry Research Board. There were 5,214 housing permits issued last year, down from 6,404 in 2010. Single-family home construction in the Inland region dropped year over year almost 29 percent to 3,732 homes, reaching yet another record low.

By contrast, the volume of multi-family homes, which includes apartments, condominiums and townhouses built last year increased in Riverside and San Bernardino counties by a little more than 26 percent to 1,482 units, the vast majority assumed to be rentals.

The rapid disintegration of the new-home market last year surprised the home building industry, said Steve Johnson, Riverside director of the MetroStudy real estate consulting firm.

“It really broadsided everyone to see the market gradually melt away. Consumer confidence went into the tank,” Johnson said. Although an uptick in Inland job creation has been seen in the last 90 days, “it wasn’t enough to save us last year,” he said.

Chapman University Economist Esmael Adibi said while some people yearn for a revival of home building to spur the economy, an influx of new homes would add to the already high supply of resale homes and push down home prices.

“Why should builders build when there is so much out there to compete with?” he said.

The Building Industry Association, in releasing Wednesday’s report, called on cities and counties to lower and defer development impact fees so new homes can better compete on price with bank-owned homes.

Meanwhile the thrust of home construction is shifting from single-family homes to rental units.

“That shows a lot of people are shying away from buying and they are renting,” Adibi said.

One reason for that, he said, is there are many people in this economy with damaged credit histories who can’t buy homes because they don’t qualify for mortgages. This includes people who have lost their homes to foreclosure.

“You are dealing with a situation where the demand for homes is basically filled by the foreclosure process and the foreclosure process in turn has been stimulating a larger demand for rentals,” said Chris Thornberg, founding economist at Beacon Economics in Los Angeles.

However, the trends are positive, said Thornberg.

“The state doesn’t have enough housing. You can see that in the falling vacancy rates and rising rents in the multi-family market,” he said.

Ultimately job growth will revive the consumers’ appetite for home buying, he said, scoffing at those who say the housing bust could create a renter society.


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