After declining dramatically in 2007, construction of new homes in California will increase slightly this year, while remaining well below the average level of production in recent years, a building industry economist said Thursday.
In a forecast he called “not wildly optimistic, but optimistic nonetheless,” Alan Nevin, chief economist for the California Building Industry Association, said he expects 128,400 single-family and multifamily housing units to be built statewide this year, up 10.5 percent from about 116,250 in 2007. The final numbers for 2007 have not been tallied, but it appears production was off by 30 percent from 2006, as builders statewide reacted to falling demand and the credit-market crunch by curtailing production and attempting to sell their existing inventory.
Nevin said he also expects Bay Area housing production to rise this year, to 21,000 units from about 19,000 in 2007. Of those, about 10,000 are forecast to be detached, single-family houses, and 11,000 to be multifamily units, meaning townhouses, duplexes, high-rise condos and apartment buildings.
Even if the increases occur, the Bay Area numbers still would fall far short of totals from 2002 through 2006. During those five years, an annual average of nearly 14,000 detached houses and 12,000 multifamily units were built. Statewide, the average in those years was nearly 190,000 homes.
Nevin acknowledged Thursday that his forecast for modest improvement in home building contradicts most other economists’ outlooks. But as reasons for his optimism, he cited the weak U.S. dollar’s positive effect on exports, declining rates for 30-year mortgages, and the so-far mild effect on the economy of $3-plus-per-gallon gasoline, among other factors. He called the foreclosure rate in California a “short-term phenomenon” that isn’t as severe as in many other states.
But, he said, if consumer confidence worsens and interest rates rise substantially, that “would put a major damper on my cautious optimism.” He predicts rates for 30-year conforming loans – those of no more than $417,000 – will soon fall from just over 6 percent to 5.75 percent or less, based on declining yields on 10-year Treasury notes, which traditionally predict trends in long-term mortgage rates.
Local economist Richard Carlson of Spectrum Economics in Mountain View said that while Nevin’s approach to the year is sanguine, it’s “not a crazy forecast.” But, he said, “the big question he’s leaving out of the equation that everybody’s wondering about, is . . . do things get tough enough in enough places to push things into recession” on a national level.
Nevin predicted prices for new for-sale homes will be “dead flat” in the Bay Area this year, though builders will continue to offer concessions and free upgrades not reflected in the price.
IF YOU’RE INTERESTED
To read the forecast, go to www.cbia.org.
Contact Sue McAllister at smcallister@mercurynews.com or (408) 920-5833.
