Construction slowdown drives out local builders

The nation's home builders are still singing the blues, but in Sonoma County the tune is now sung by a new set of builders.

New home construction remains close to record lows here again in 2011. And most of the new homes are the work of out-of-county builders, often those who received deep discounts when they purchased other builders' stalled projects.

The current companies include three of the nation's top 10 home builders: Lennar Corp., KB Home and Meritage Homes.

It's quite a change from the days when smaller, local companies like Christopherson Homes and Pinnacle Homes oversaw the work of turning the county's bare ground into brand-new communities with hundreds of homes.

"There aren't many locals left," said Chris Peterson, president of Rivendale Homes in Santa Rosa.

Several local builders have closed their doors. Others, like Peterson, are keeping busy in other ventures, including building rental housing.

Eventually more home buyers will return and building will resume, Peterson said. But today construction loans are nearly impossible to get, foreclosures have pushed prices far too low and new home building still contains too much risk.

Builders took out permits for 430 new housing units in the county in the first nine months of the year, according to the Construction Industry Research Board, an industry-funded research center in Burbank. That represents a 31 percent increase over the same period from a year earlier. But it's only about a quarter of the building permits that were issued in the first nine months of 2006.

This year is on track to end as the worst in a half-century for single-family home construction. The National Association of Home Builders last week predicted the U.S. will add only 422,000 houses this year, down 10 percent from 2010. In 2006, that figure peaked at 1.7 million houses.

Similarly, the Research Board predicts that California builders will construct a record-low 21,500 single-family houses, down 16 percent from last year.

"We expected some improvement this year and it didn't show up," said Ben Bartolotto, research director at the Construction Industry Research Board.

Sonoma County did somewhat better. Builders here have received permits to construct 316 single-family homes to date this year — 74 percent higher than for the same period last year. The total for all of 2010 was just 276 single-family houses, the lowest number in decades.

However, both Lake and Mendocino counties are on track to hit new lows. In Mendocino, builders pulled permits to construct just 73 single-family houses during the first nine months, compared to 122 for the same period in 2010.

And Lake issued permits to build just 26 single-family houses during the period, down from 35 a year ago.

For the first three quarters, the value of all residential and commercial construction projects in the three counties rose to $251.7 million, up 13 percent from a year earlier. However, it still is just a fraction of the activity from five years ago, when there were $772.8 million in construction projects during the period.

Paul Campos, a senior vice president with the Building Industry Association of the Bay Area, said smaller builders have struggled to survive "a depression for the home building industry."

In Sonoma County, the downturn forced the bankruptcies of prominent landowner Clem Carinalli and developers Wendell "Del" Nordby and Orrin Thiessen.

Pinnacle Homes filed for bankruptcy protection earlier this year for two limited partnerships with homesites in Sonoma and Mendocino counties. And Christopherson Homes last year lost two partially completed subdivisions in southwest Santa Rosa to a foreclosure auction and a court-ordered sale.

Miami-based Lennar paid $7 million for one Christopherson project, Linwood Village. The amount owed the lender was $12.7 million. Meritage Homes of Scottsdale, Ariz., bought the other, Ragle Ranch, for $12 million. Public records showed the lender was owed $22 million.

Both builders now have homes for sale here, as does KB Homes of Los Angeles at its Quarry Heights Project in Petaluma. Observers say these builders have substantial capital for buying stalled projects and for building.

The three companies are reporting lower revenues this year. The biggest of the three, Lennar, reported $2.1 billion in revenues for the first nine months, compared to $2.2 billion a year earlier.

So far this year, Lennar has sold 70 homes in three Sonoma County developments, said Dale Billy, Lennar's Bay Area division president.

"With interest rates at historic lows, we are seeing an increase in activity," Billy said in a statement. "We look forward to expanding in Sonoma County in the years ahead."

Economists expect more homes to be built locally and nationally in the next few years.

The national builders group predicts construction to increase 17 percent in the U.S. next year to 495,000 houses and grow again in 2013 to 723,000 houses.

Similarly, Eduardo Martinez, a senior economist who studies California for Moody's Analytics in West Chester, Pa., also predicted somewhat better days ahead for the county's home construction industry.

"It's going to be a gradual increase," Martinez said. He expects to see "meaningful" growth in 2013, but he cautioned that it could take several more years for the county to get back to a rate of 1,500 new homes a year — about half the number built in 2005.

Greg Paquin, president of The Gregory Group, a new home research and consulting firm in Folsom, said the future homes may be smaller, aimed at younger adults and retirees — "the first-time and the last-time buyers."

Many newer subdivisions feature 3,000-square-foot homes, Paquin said, but "we may not need a ton of that moving forward."

A key problem for builders today is that foreclosure homes still sell for less than the cost of building new ones. Experts don't see a quick end to these distressed sales.

Randy Waller, a broker/owner of W Real Estate, says most of the current housing projects pencil out because they were taken back by banks and later sold at steep discounts. In other cases, the builders took a tax write-off by slashing the stated value of land bought before home prices plunged.

Waller said it's still far from clear how the county's home building industry expands after these "broken" projects are completed. Experts aren't predicting a big rise in home prices or a big drop in building costs, he said.

"So why are we predicting an increase in construction?" he asked.