Market For New Homes In California Hit By Competition From Foreclosures

June 13th, 2008

The year 2005 saw a boom in home building in the Stainislaus County with 1.727 building permits being issued between January and April. This year however only 218 permits have been issued so far in the same time period. This amounts to a decline of 87 percent in housing permits. San Joaquin and Merced Counties too have shown a sharp decline in the number of homes being built.

According to the Construction Industry Research Board the number of homes being built in Northern San Joaquin Valley has never been as low in the last 20 years. The Board predicts that 2008 will mark the lowest level that the home building industry in California has reached since 1954.

Several builders have moved out of the area and among those who are left many are selling their homes for less than the cost of construction.

Builders are holding the competition from foreclosed homes as being partly responsible for this situation. Buyers are able to purchase a foreclosed home for as little as $100 per square foot. Thus many are opting for this rather than investing substantially more in a new home. The fierce competition is compelling builders to concentrate on pre-sold homes rather than on speculation, says Steve Mothersell of Modesto’s SCM Homes.

Vice President Robert Martelli of JKB Homes warns that the market for new homes in the valley is not likely to improve soon. He predicts that the situation will remain unchanged until builders are able to recover the cost of constructing new homes. As the regional economy is dependant on the construction industry, the present situation is creating financial hardship all round and many are losing their jobs, says Martelli.

Robert Rivinius, President, California Building Industry Association, points out that a study conducted two years ago had estimated that the home building industry in California employed more than half a million people and was a $58 million a year industry. Today production has been cut by two thirds across the state and the situation is keenly affecting everyone connected to it, he says.

Buyers, on the other hand, are reaping the benefits of this slump in the industry. Not only are they being able to buy homes at lower costs but they are also being offered attractive deals by the builders associations. For example, SCM Homes gives help with down payments while JKB Homes have made solar powered roofs which generate electricity standard.

Martelli sums up the situation saying that this is “a great time to buy” as buyers stand to gain in this situation.