Wednesday, July 30, 2014

Whatever happened to the local independent builder?

From page HS3 | April 05, 2013 |

The residential real estate market is moving in the right direction. County median sale prices are up 24 percent over last year, foreclosures and short sales are now only a small percentage of our available inventory and interest rates remaining less than 4 percent are helping many buyers qualify for a mortgage loan. The only immediate challenge to upsetting this bull market is available inventory. There are just not enough homes to go around for the number of buyers. 

So what happens when there are no meaningful number of houses to buy in our county? Well, normally folks will look someplace else. Buyers who can’t find a new home priced less than $400,000 will simply consider new homes in Folsom a few minutes down the hill. Home shoppers are like all consumers; if they can’t find what they are looking for at one place, they will go to another. The problem with that traditional response is it’s not only El Dorado County that doesn’t have any homes for sale. Nobody else does either.

According to the Sacramento Association of Realtors, there are less than 1,100 active listing in all of Sacramento County. That’s a bit of a drop from the nearly 9,000 listed for sale in 2008 or 4,000 available at this time last year. With an average of a thousand homes selling each month, Sacramento County is out of homes.

Placer County is also nearly out of homes for sale. Oh, there are 500 currently listed but based upon their current number of sales, that supply will be gone in six weeks. The entire six-county region has nearly 50 percent fewer homes for sale now than at this time last year.

With the decrease in resale inventory, one would think that area builders would have shifted into high gear and new home sales would be breaking records. But that’s not really happening. According to the North State Building Industry Association, new home sales last month were at the highest level in five years. “Five year high for new home sales” may be a catchy headline but it’s not much considering there hasn’t been any new construction in our region for the last five years. In the 64 new home communities in our six-county region, only 219 closed sales were recorded last month. That’s good news but on a seasonally adjusted average that’s only 1,200 for the year in a region that averaged 9,578 yearly new home sales between 1995 and 2010.

New home construction will eventually help alleviate the current shortage of inventory in other communities but not so much in our county. According to the Sacramento Area Councils of Governments, Roseville, Elk Grove and Folsom now make up 55 percent of all the new housing starts. The balance of Sacramento and Placer Counties had another 38 percent. El Dorado County accounted for 5 percent of new housing permits issued. More new home construction is taking place in the city of Rocklin than in our entire county. So what up with that?

There are a number of reasons new home construction isn’t happening in our county. Local, independent builders who were busy building homes for folks prior to 2007 have simply gotten out of the business. Most have left the county but survivors have diversified into home remodeling. Three national builders — Lennar, Standard Pacific and Taylor Morrison — now control the pace and price of any new homes built in the county.

Publicly traded home builders like Standard Pacific, which is the 12th largest home builder in the county, have access to capital not available to an independent builder.

Despite the shortage of new homes, construction financing isn’t readily available for the small independent builder. Many of the banks that specialized in new construction lending have disappeared or are on a tight leash held by FDIC. When the real estate market turned south in 2006 so did the banks portfolio of construction loans.

If financing were available to local builders, the number of ready-to-build lots in our county isn’t there. Currently, there are 65 individual building lots listed for sale that have sewer and water and a road access. They are all located in either Cameron Park or El Dorado Hills and range from an average price of $150,000 in Cameron Park to $200,000 average in El Dorado Hills. Building a “spec” home, intended for sale, on scattered individual lots with challenging terrain isn’t profitable unless the house has been pre-sold or an owner/builder completes the project.

It was the collapse of the housing market after 2006 that decimated the ranks of the small, independent builder. Falling prices and weak demand are serious handicaps for any home seller but they are a fatal combination for builders. The irony, however, is that while individual home sellers are now celebrating their good fortune of increasing demand and property values, there is no hopeful sightings of the returning independent builder.

The economics of making a profit by building and selling a few homes each year for the independent small builder is likely a long way off in our county. Home values would need to double before the builder can cover their cost and eke out a small profit. Excessive impact and permit fees, environmental regulations and our BANANA (Build Absolutely Nothing Anywhere Near Anyone) attitude has all but guaranteed new homebuyers will have to look elsewhere for an affordable new home.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached at





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