Builders 'Getting Body-Slammed Right Now'

From the Sacramento Business Journal:

First things first: Sacramento's economy won't rebound to greatness next year. It should grow a little, economic forecasters say, but it will take until 2009 for the housing market to revive and fuel other sectors such as retail and construction. In the meantime, they say, there's no reason to panic.
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"The main thing that will determine how fast Sacramento recovers is how fast the housing sales recover," said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. "I don't see any reason that the volume of housing activity needs to go down any further. It's already well below the equilibrium levels for long-term demand," he said. But while sales volume might have bottomed out, prices most likely haven't.
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Sacramento was hit particularly hard this year, with the median price of a resale home falling 15.7 percent in the two years from its August 2005 peak to August 2007. That's the second-biggest drop of 15 regions across the state, and it was driven in part by rapid new-home construction that caused a supply glut when demand softened, the association said.

Sacramento had a steeper fall because it had a steeper climb. Even though the market remained cheaper than the Bay Area, the gap got too narrow, said Levy, and Sacramento doesn't pay the wages needed to sustain the prices Sacramento houses were fetching. His forecast calls for prices bottoming out in 2008, which should make sales volume pick up by the end of that year.
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A lot depends on the public's perceptions next year. "The only danger to the overall economy is if consumers get spooked by what they see in housing prices and start cutting back on consumption," said Levy. "If people agree with me that the volume activity levels are about at the bottom, we've taken that hit."
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Scott Anderson [vice president and senior economist, Wells Fargo]: The housing market declines have been a little more severe than we expected, given generally neutral mortgage rates. All this has been driven by overvalued housing and tighter lending restrictions. It's a significant adjustment for no real increase in mortgage rates.
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People think of Sacramento as being a fairly affordable place to live, at least by California standards. I'm not sure that's anymore the case. From a national viewpoint, it's no longer a low-cost place of doing business.

Stephen Levy: The Sacramento region needs to provide for housing that's affordable to a broad range of people. That's an economic issue, not just a housing issue. The threat to the Sacramento economy right now is in unaffordable housing.

From the Sacramento Business Journal:

The Sacramento region remained mired in ninth place -- unchanged from a year ago -- in a comparison with its chief economic competitors in the West. The six-county region ranked low in a matchup with 10 communities plus the United States as a whole, according to the latest Prosperity Index report released today by the Sacramento Regional Research Institute..."In fact, the region received the lowest score among competitive regions in both the job growth and unemployment rate indicators," the report said.

From the Sacramento Bee:

The [Sacramento] region added 1,700 jobs in September, following two straight months of job losses. The region's unemployment rate was 5.4 percent, the same as the month before. But it was well above the 4.3 percent of a year ago because of job losses in construction and other housing-related industries. The region's construction and finance sectors lost 1,300 jobs in September.
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[A]nalysts agree that retailing is a key industry to watch for signs of where the economy is heading. California retailers did minimal hiring in September; there were no net gains in retail jobs in Sacramento. September is usually a month when retailers expand their payrolls, to handle back-to-school sales and get a jump on the December holidays. "Retail is kind of flat," Lyons said. "Retailers are holding back."

From the Sacramento Bee:

Growing consumer debt, the subprime credit crunch and the housing market's steep slowdown have spurred real concerns that shoppers may curtail holiday spending this year. The housing slowdown and credit worries have whittled away at local retail leasing, a pillar of commercial real estate during the housing boom. According to broker CB Richard Ellis, retail vacancies jumped to 7.1 percent for the third quarter, up from 5.9 percent a year ago.

From the Sacramento Business Journal:

Bank deposits grew in the Sacramento area less than 1 percent in the past year, a far cry from the double-digit growth in deposits common earlier this decade...For the first five years of this decade, the region's fast deposit growth prompted banks from all over the country to open offices here. Now that the branches are here, the deposit growth is slowing overall.
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The decline in growth could mean people have less money, that they are saving less or that they are shifting money from insured accounts to other investments such as stocks, bonds, real estate, or Treasury bills or municipal bonds. It could also point to more money going into credit union accounts.

From the Stockton Record:

Months have passed since the days when dozens of homes at a time were going up in any given subdivision in San Joaquin County. But these days, the typical new-home development looks as if it's nearly in hibernation as the housing market steps into the third straight year of decline.
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Greg Paquin, president of the Gregory Group, said builders have responded to a very slow market not only by cutting prices further but also by either delaying or stopping projects or in a few cases by selling standing homes at auction. "They're getting body-slammed right now, frankly," he said.
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"Valley new-home construction sites are ghost towns," said Shane Hart, vice president in charge of acquisitions, development planning and marketing for Stockton-based Grupe Co...Grupe has offered as much as $150,000 in incentives per home, yet sales have become so slow that construction was halted at three developments in Stockton, Waterford and Tulare.
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Paquin said there's more bad news on the horizon for new-home builders, who in recent months offered such low prices and incentives that they even drew buyers from the existing-home market. The flood of foreclosures is attracting the attention of bargain hunters and forcing existing-home prices down so much that those homes are getting more attention from potential buyers, he said.

From the Sun Post:

Complaints from two developers that rising foreclosures and a large housing inventory have crippled sales led the [Manteca] City Council this week to postpone the fees developers owe for homebuilding reservations under the city’s growth cap. The council’s 3-2 vote to postpone millions of dollars in fee payments for two years was opposed by councilmen Jack Snyder and Steve DeBrum, who worried that it could damage the city’s budget.
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Stockton attorney Mike Hakeem — lobbying on behalf of developers Raymus Homes and FCB Homes — countered that no one else would be willing to pay for the reservations this year because the housing market was so bad.
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During their discussion, councilmen both for and against the extension focused on the need to keep home prices up. “These are significant factors when it comes to how we need to proceed as a local city government to protect the values of our homes,” said councilman Vince Hernandez, after alluding to an auction of 34 new homes at highly discounted prices last weekend.

From the Modesto Bee:

Unemployment rates in Stanislaus, San Joaquin and Merced counties swelled above last year's averages, the result of a shaky economy and deepening housing crisis. The three counties each gained at least a percentage point from the previous year, with Stanislaus County recording the biggest jump. The county went from an unemployment rate of 6.6 percent in September 2006 to 8 percent last month, according to state Employment Development figures released Friday.
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The housing slowdown has taken an even larger toll on San Joaquin County. Its unemployment rate was 7.8 percent last month, up from 6.5 percent the previous year. The county saw huge declines in manufacturing, construction, professional business services and financial activities. Combined, those industries lost about 2,100 jobs. "All are definitely related to the housing crisis and mortgage credit issues," Baker said.