Thursday, August 23, 2012

New home building in Sacramento area inches back up - Sacramento Bee

At an upscale subdivision in El Dorado Hills on Wednesday, the sound of hammers and power saws echoed across the oak-covered hillsides. It is a sound that largely went silent in the past five years as the Sacramento region's home builders, once a major economic force, curtailed or ceased construction during the housing crash.

Today, with a report due out from the federal government on new home sales in July, there are increasing signs that the new home market may be coming around.

In a national survey this month, home builders expressed their highest confidence level in years. Goldman Sachs called new home companies an attractive investment. And in May, sales of new homes reached a national two-year high before declining in June.

Construction industry experts say demand for new homes in the Sacramento region is picking up because of historically low mortgage rates and a scant supply of existing homes for sale. Buyers are turning back to new homes, and builders are cautiously increasing output to meet the demand.

"We're focused on today," said Jon Nicholson, Sacramento-Central Valley president for Standard Pacific Homes. "If we get a couple of sales (one) month, we're going to start a couple more houses."

That's a big change from the go-go years of the boom, when builders erected homes at a rapid clip and buyers lined up for chances to buy.

Standard Pacific, a large national builder, has 21 homes in various stages of construction at its Legacy Oaks at Serrano project in El Dorado Hills. Dozens of workers on Wednesday poured concrete, hung drywall and installed electrical wiring.

The company, which started building in the Sacramento area in 2003, has 13 active projects here â€" including in Woodland, Lincoln and Folsom â€" with homes priced from the $200,000s to the $500,000s.

"We've been fortunate to keep building" through the depths of the downturn, Nicholson said.

First-time buyers and move-up buyers â€" those not trapped in homes worth less than what they owe â€" are now among the company's key customers.

Jeff and Jennifer Camp, both in their mid-30s, sold their Folsom home and are using their equity to upgrade to one of Standard Pacific's new models at Serrano. The four-bedroom house being built for them has a luxurious informal floor plan that opens to an outdoor living area. The model starts at about $517,000.

Jennifer Camp said the couple had started to shop for existing homes but were quickly dissuaded by the lack of choices. It was easier, she said, to select the floor plan and amenities in a new house.

"We had looked at a few resale homes, and we just couldn't get what we wanted," she said. "We finally said, 'That's it. We're going to go to a new home.' "

Her retired parents, Jim and Sophie Schlienz, liked the neighborhood, too, and decided to buy a one-story house next door on Goya Way to be closer to their 1-year-old granddaughter, also named Sophie.

"After nine homes and 47 years, I'm finally getting a pantry," said Sophie Schlienz, a retired telephone company employee.

Greg Paquin, a Folsom-based building industry analyst, said buyers like the Camps are seeking out the relatively few new homes being built in suburbs such as Elk Grove, Folsom and Roseville.

"Buyers feel we bottomed out. The economy's improving, albeit slowly, and people are feeling more secure in their jobs," Paquin said. "They're thinking, 'I could buy that house that used to be $800,000 for $400,000 with an interest rate at 3 percent. I may not be able to do that again in my lifetime.' "

The economics of supply and demand may help the market grow, he said.

A report issued by Paquin's firm, the Gregory Group, last month showed that in the second quarter of 2012, there were only 431 new homes unsold in the region. That is the lowest number since the fourth quarter of 1999, during the last housing bust.

Meanwhile, there were 776 new homes sold in the Sacramento area in the second quarter of 2012 â€" the highest figure since a federal tax credit for home purchases was in place in 2009 â€" the report said.

Several other indicators point to a fledgling recovery, according to a Bee review of state and federal data.

Home builders obtained permits for 1,374 new housing units in the four-county region during the first six months of this year, up 12 percent from the same period during 2011, the U.S. Census Bureau reported.

Construction employment also is rising. About 40,800 local residents held construction jobs in July, up 9 percent from July 2011, according to the state Employment Development Department.

That's not to say we're back to normal, let alone boom-year levels.

New housing starts are still down 72 percent from 2007, during the waning days of the housing boom. A normal six months for Sacramento home construction would see 4,000 to 5,000 new housing starts.

And construction employment is off by 45 percent, or 35,000 jobs, from the peak of the housing boom in 2005. The 10-year average for construction employment in the region is 57,000, about 16,000 more construction jobs than exist today.

Economist Jeffrey Michael, head of the Business Forecasting Center at the University of the Pacific, said the increase in new home sales may be more a product of immediate market conditions than of widespread economic recovery. But he predicted a stronger resurgence may not be far away.

"I believe the slight uptick in activity is driven more by the lack of resale supply, both quantity and quality, than a surge in demand," Michael wrote in an email. "But demand will grow as the recovery progresses, household formation begins to increase, rents rise, (and) people with previous foreclosures and short sales become eligible for mortgages."

By 2014, he said, he expects new home sales to double from current levels. Still, he said, "new home production is so far down that even doubling sales will still be a shadow of what it was."

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


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