'Normal Market' Projected for California for 2007

California builders expect return to 'normal market' in '07
Forecast calls for 'soft to stable' home prices
Friday, January 05, 2007
Inman News

The chief economist for the California Building Industry Association trade group expects housing starts for single-family homes, condominiums and apartments to range from 155,000-170,000 units this year, which could be about the same or slightly lower than in 2006, the group announced this week.
Single-family housing starts in 2007 should range from 110,000-120,000 units, Nevin also stated, compared with about 110,000 single-family housing starts in 2006, and multifamily construction starts are expected to range from 45,000-55,000 units, compared with 58,000 in 2006.

"Keep this year's forecast in perspective -- we are returning to a normal market," Nevin stated. "Producing 155,000 to 170,000 units will be more than any year from 1991 to 2001 and could exceed production levels from 1990 and 2002 as well."

Nevin said he expects production to be especially low in first-quarter 2007 as builders finish selling excess inventory, and he expects construction to pick up later in the year. "We need to be building about 240,000 new homes, condos and apartments a year to meet the need for housing," he stated, adding that fees and constraints on housing make it "all but impossible to meet the need in the entry-level market."

Housing prices will remain soft to stable in most markets, according to Nevin's forecast.

"We are already seeing signs of price stabilization as builders in some markets have sold most of their standing inventory. We expect that trend to accelerate after the first quarter. Because there's still excess inventory, there are still significant concessions, which we expect will drop considerably later in the year," he stated.

The forecast states that job gains have been slower than normal for the past few months on a national basis. "It is highly likely that because of the housing slowdown, employment gains in 2007 will not be as strong as they have been over the past few years. Typically, 200,000 new payroll jobs are seen as a bellwether for the U.S. economy. The past few months, monthly job gains have been closer to 100,000 than 200,000," the forecast report states, with unemployment rates expected to climb from 4.4 percent to 4.8 percent.

Nationally, the forecast calls for total U.S. housing permits in 2007 to reach 1.8 million to 1.9 million, compared with 2.16 million in 2005 and 2.05 million in 2004. Existing-home sales, meanwhile, are expected to reach 6 million in 2007, compared with 6.1 million sales in 2006.

Home prices on a national market "will be flat, at best," the report states. "In some markets, there may be net declines on the order of 5 percent to 10 percent from 2005 highs, but those markets are few," according to the forecast.
In California, the forecast calls for a gain of 180,000 to 210,000 total jobs in 2007, which is on pace to match 2006 and about half that of 2005.

Construction costs "appear to be at a standstill" for wood-frame construction, the forecast report states. Home-building costs and land prices are expected to fall in most metro areas of the state in 2007, with "accelerated opportunities for smaller builders to obtain land at prices that are almost palatable, both in suburban and urban areas."