House construction still falters

For three months a parcel in Marysville has been the scene of carpentry, pipe-fitting and roofing — once-common sights now rare in the Mid-Valley.

On Tuesday, nine workers helped a trio of two-story apartment buildings slowly take shape at 11th and J streets. Due for completion in September, the 12 rental units planned by Larjer Inc. of Marysville are a modest addition to a housing stock that has barely grown in the four years since recession and a rash of mortgage defaults threw the brakes on rapid growth locally and across the nation.

For building superintendent Dan Berry, the local slowdown in home construction has been the severest in his 30 years in the industry — and has pushed those still in the business to accept far smaller jobs than the subdivisions that once created dozens or hundreds of houses at a time.

"We built tract homes behind Lowe's (in Yuba City) — couldn't build them fast enough because people were lining up to buy them," Berry recalled of the frenzied real estate market that pushed median house prices north of $300,000 by 2005, more than 50 percent above current levels. "People will work for anything, on anything, just to get work.

"I don't see it coming back for three years or more; everyone's waiting to see what's going on. I don't think it'll ever get to like it was before."

The rarity of homebuilding in what once was one of the nation's hottest real estate markets has echoed a nationwide plunge in home construction, which fell last month to the lowest level since October as the economy remained weak and demand for housing plummeted.

Driving the June decline was a more than 20 percent drop in condominium and apartment construction, which makes up a small but volatile portion of the housing market. Construction of single-family homes, the largest part of the market, was down slightly. It dropped 0.7 percent.

Overall, construction of new homes and apartments in June fell 5 percent from a month earlier to a seasonally adjusted annual rate of 549,000, the U.S. Commerce Department said Tuesday. May's figure was revised downward to 578,000.

Homebuilders are struggling to compete with a glut of homes on the market, many of them foreclosures or deeply discounted properties.

One bright area of the new home construction report was an increase in building permit applications, which are a sign of future activity. They rose 2.1 percent from a month earlier to an annual rate of 586,000, though this was also driven by apartment construction.

But no such optimism is evident in Yuba City, where single-family residential building permits have totaled just 15 in the first six months of the year — none at all in May. The 33 permits granted last year were a wisp of the city's former homebuilding activity, which resulted in a record 991 building permits in 2004.

A slumping job market and competition from foreclosed properties have forced builders to limit construction, especially after tax credits that spurred sales expired at the end of April.

"The housing market remains the Achilles' heel of the recovery," said M. Cary Leahey, a senior economist at Decision Economics. "It is hard to imagine confidence recovering to healthy levels until the housing market experiences much less distress."

In a typical economic recovery, the construction sector provides much of the fuel. Not this time. While developers have cut back on construction and the number of new homes on the market has fallen dramatically, they still must compete against foreclosed homes selling at deep discounts.

Any hints of recovery in the real estate market could easily be snuffed out if widening government shortfalls lead to higher taxes and less disposable income, warned Lloyd Leighton, a Yuba City real estate agent and analyst.

"To me, the scarier thing is that California has a $19 billion deficit, we have no budget, the Legislature thinks it was a good idea to take July off," he said. "When the state finally has to deal with that deficit, what impact will it have on the economy, on employment? And we're running huge federal deficits, so when does that translate to higher inflation, higher interest and mortgage rates?"

Builders may be turning their attention away from new projects to complete those already in progress. Housing completions rose 26.2 percent in June, said John Ryding and Conrad DeQuadros, economists at RDQ Economics. That could be a positive sign for future activity.

Besides the Larjer-built apartments, one of the few local homebuilding projects under way is the Montecito subdivision in Yuba City. Interwest Homes has built 24 houses and finished 14 half-completed residences, under a city agreement allowing the company to pay 2004 development impact fees instead of current rates to save Interwest up to $11,000 per home.

Still, builders have been feeling increasingly pessimistic of late. The National Association of Home Builders said Monday that its monthly reading of builders' sentiment about the housing market sank to 14 — the lowest level since March 2009.

Readings below 50 indicate negative sentiment about the market.

The rate of home building is still up about 15 percent from the bottom in April 2009, though it's down 76 percent from the last decade's peak in January 2006.

New home sales in May dropped 33 percent to the slowest pace in the 47 years records have been kept. In Yuba-Sutter, a survey by the California Building Industry Association reported just four home sales in May, down from nine the previous month and 25 a year earlier.

The national drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30.