North Bay builders find hope in small sales bump

Sonoma County builders are hoping a small increase in sales may signal the area’s battered construction sector has finally hit bottom.

Still, the county’s new home market has far to go before it rebounds.

Developers are only selling about four homes a month and construction is expected to remain near record lows this year because houses are still selling for less than they cost to build, according to industry reports and builders.

The uptick in sales is a small, yet hopeful sign for builders, who have shed hundreds of workers and struggled to stay in business, said Cheryl O’Connor, acting chief executive for the Home Builders Association of Northern California.

“The increase in sales and traffic is great news and we haven’t had great news in a long time,” O’Connor said. “Again, we do not see any increases in (building) permits pulled until it makes financial sense. Many builders are just on hold.”

Builders must vie for buyers with a resale market dominated by foreclosures and deeply discounted prices. Sales of existing homes jumped 40 percent in March, but the surge in sales has been concentrated among lower-priced properties.

To compete, builders in the handful of active subdivisions have cut prices 30 percent or more over the past three years.

But sales only recently showed gains, likely spurred by interest rates near historic lows and state and federal tax credits that help new home buyers and first-timers.

“We were slow starting out this year, but it’s picking up now. So you’ve got a little momentum,” said Jim Scally, who tracks the new home market for Fidelity National Title.

In Sonoma County and across the Bay Area, sales have picked up from about two a month in March to four in April, according to The Ryness Company, a real estate research firm in Danville.

Home sales at the Taylor Mountain subdivision in southeast Santa Rosa have also picked up after several very slow months since opening last fall, said Aaron Matz, president of the development company.

Price cuts and the lack of new homes for sale in the county are helping drive the increase in buyers, he said.

“With so many projects on hold there’s got to be some pent-up demand,” he said. “In terms of pricing, I think we’ve seen the floor.”

Rivendale Homes has stopped cutting prices in its Santa Rosa projects and recently raised the price in its Woodbridge subdivision by $5,000, said Chris Peterson, co-owner of the company.

Despite the increase in demand, Rivendale won’t accelerate its construction schedule and undercut prices.

“You have to build at a slower pace. Hopefully we will be able to capture some price increases,” Peterson said. “Otherwise we may just stop.”

Builders with active projects in the county dramatically reduced housing starts in response to poor sales during the worsening downturn.

Through the first three months of this year, developers pulled permits to build 128 homes and apartment units in Sonoma County, up 16 percent from the same period a year ago. But the increase was in apartment units and that market has slowed.

Residential construction for 2009 is still expected to fall below last year’s 576 houses and apartments, the lowest total since at least 1967, when the Construction Industry Research Board began tracking housing starts.

“We need prices to come up before you can build a house and make a profit,” Peterson said.

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.