Construction: New land deals seen
By Jim Wasserman
The real estate market isn’t cured yet, but several indicators suggest that it is beginning that long, slow and greatly anticipated climb out of intensive care.
If so – and if the patterns continue – the market here could stabilize, finally reversing the decline that has marked the capital region as one of the worst-hit metro areas in the United States. Sacramento’s ill-fated housing boom peaked four years ago this month when home values reached their zenith across much of the region – and then started slipping backward.
Among positive June indicators that have fueled relatively upbeat news in recent days are those that show greater-than-expected U.S. construction activity, especially in the home building sector.
• Even in the capital region, home builders are doing better – starting 374 houses, apartments and condos in June. That was 122 more than in May, the California Building Industry reported.
• Statewide, home builders started 17 percent more dwellings in June than in May, and reported the most construction starts for single-family homes in almost a year, according to the CBIA.
Analysts have warned these improved housing indicators look good primarily because of the ferocity of the real estate downturn. Nobel Prize-winning economist Paul Krugman referred to the indicators Monday on National Public Radio as "just the first glimmer of hope" and warned the economy will remain weak for an extended time.
Foreclosure activity that has saddled the capital region with 41,900 home repossessions since 2007, as well as an 11.6 percent unemployment rate in the state and the region, still applies brakes to excess enthusiasm about the economy.
In Sacramento "we have a lot more decompressing to do," added Sanjay Varshney, dean of the College of Business Administration at California State University, Sacramento. "Normally, I would have said we would have defined a bottom, too, later this year or early next year. I think for us the challenge is the government layoffs have just begun.
"We might be looking at our cycle to be pushed out compared to the national cycle," he said.
Yet, rising construction numbers – even if well below the same time last year – are steering developers and builders into new land deals. One Sacramento-based development operation bought 800 home lots in Reno last week in anticipation of an upturn.
"We’re really seeing enthusiasm on the part of builders that we haven’t seen in a few years," said Douglas Mull, vice president for land acquisition in Northern California and Nevada for the Lewis Group of Companies of Upland.
A Lewis venture – Lewis Investment Co. of Nevada – paid $6.6 million for lots that fell into bankruptcy court after the original developer, affiliated with CalPERS, invested more than an estimated $20 million readying them for homes. That was LandSource Communities Development, LLC, a multistate real estate portfolio once run largely by Miami-based Lennar Homes. CalPERS lost nearly $1 billion on its investment in the partnership, which filed for bankruptcy in June 2008.
Mull said Lewis plans to sell lots to U.S. home building giants, many of which run Reno operations from headquarters in Sacramento and the Bay Area. Most of the lots are in the suburban 5,000-lot Damonte Ranch community that Lewis helped develop early this decade. Sales stalled during the housing bust.
Mull said Monday that Reno’s $20,000-per-lot builder fees are especially competitive for national builders. Fees can run four or five times higher in Sacramento-area cities.
The land executive, reminded of double-digit unemployment and high foreclosure activity in both Sacramento and Reno, acknowledged the road to a rebound is long.
"But there’s new home demand," he said. Mull estimated Lewis will take about five years to sell all the lots.
Some other indicators drawing attention:
• California’s existing home sales rose 20 percent in June compared with the same period a year ago. Though capital-area sales failed to beat June 2008, analysts and real estate agents blamed dwindling bank repos for sale. They also report fierce bidding wars for repos that remain. June’s existing home sales in the Sacramento area marked a peak for 2009, while a once-frightening and prolonged glut of for-sale signs continued to fall.
• Multiple offers have spread now to vacant land for new homes, said Mark Rowson, Northern California president for Agoura-based Warmington Homes. He said, "A year ago nobody was talking. Now, there is movement.
"We’ve put some offers in, but we have not been accepted," he said. "Offers have come in a lot higher than we’ve been offering."
Kathryn Boyce, a Sacramento analyst for Costa Mesa-based home-building industry consultant Hanley Wood Market Intelligence, explained: "They’re trying to position themselves for the next wave."
• Investors are also returning to home builder stocks. Monday, Michigan-based Pulte Homes reported second quarter losses worse than last year. But the losses were not as bad as the first quarter’s, and the company attributed the improvement to markets starting to recover. Share prices on the New York Stock Exchange rose 3.43 percent in Monday trading, to $11.76. Texas-based Centex posted a profit in its first quarter, thanks to a $407 million tax gain. Its stock price was up 3.76 percent Monday to $11.32.
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