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With Housing in the Lead, Building Industry Bounces Back

San Diego County’s building industry showed some signs of life in the first four months of 2010, with the overall value of residential and commercial building permits rising 1.6 percent from the same period of 2009.

It was the first year-over-year increase for the January to April period after four consecutive annual declines. However, data released May 24 by the Construction Industry Research Board show that the residential side, including single-family and multifamily construction and renovation, is now doing most of the heavy lifting.

The county’s residential building permits in the first four months had a value of just over $351.6 million, a rise of 18.3 percent from a year ago. That helped to overcome a 17.9 percent annual drop in commercial construction, including stores, offices and industrial buildings, with permits totaling just over $209.3 million so far this year.

Experts note that local residential and commercial building — totaling just over $561 million in the first four months of 2010 — remain well below levels seen five years ago, when overall activity was more than three times greater. However, observers point to signs that the climate is improving for single-family home development after a nearly four-year slump.

Borre Winckel, president and CEO of the Building Industry Association of San Diego County, noted that excess new-home inventory has mostly been sold off, often at deep-discount prices. Most builders have not yet moved briskly to get new construction into the pipeline, due in part to a still-tight financing climate and general skittishness about the economy.

There is a sense that the housing market has hit bottom, and that demand will increase as long as consumer interest rates remain relatively low and the overall economy improves.

“Hopefully, we’re moving into a market later this year that will be better than 2009 and closer to 2008,” Winckel said. “But the market right now is still crawling back.”

Buyers Returning

There are sporadic signs that local homebuyers are returning to the market. Mike Hall, president and CEO of builder Hallmark Communities in Solana Beach, said that when his firm put seven new homes in Escondido up for sale in February, priced in the mid-$400,000s, they sold out within a month.

He’s hoping for similar responses for homes in development in Oceanside and Vista. “I’m not saying it’s skyrocketing,” Hall said of buying activity. “It’s not like it was in 2005-2006, but it’s much better than it was in 2009.”

Other experts agree the local climate is generally improving. However, builders are releasing homes in much smaller phases and lenders have become much more strict in their financing of developments.

Steve Doyle, president of Brookfield Homes’ San Diego division, which has developments throughout the county, said the local housing market is “scraping bottom” and is not yet in full recovery.

He said he’s encouraged by steady traffic at the company’s sales offices, though higher-end new homes have generally been faring better in sales, in part because their buyers have been less impacted by the economy. Also, sales demand trailed off somewhat after the recent expiration of a federal tax credit for first-time buyers.

Affordable Homes

“The jobs picture needs to improve and more people need to feel confident about investing in what will be the biggest purchase of their lives,” Doyle said of the market’s future.

Hall noted that San Diego homes are becoming more affordable for a larger portion of the population, especially compared with the days of the market run-up, even though recent studies indicate the local market is seeing prices appreciate at a rate that is among the highest in the nation.

For instance, according to the most recent version of Standard & Poor’s Case-Schiller Home Price Index, San Diego County home values rose 10.8 percent in March compared with a year ago.

Bill Ostrem, president and chief executive officer of home developer Black Mountain Ranch LLC, said his company is averaging about six sales per week at its four developments under way near the Carmel and Santa Fe valleys.

Homes that are selling are generally in the $500,000 to $600,000 price range, and he is not handling a lot of entry-level development at this time.

“Traffic overall is up and people are out there looking, and more of those are the serious buyers,” Ostrem said, comparing the current climate to what was seen a year ago.

The Burbank-based Construction Industry Research Board reported that San Diego County building permits were issued for a total of 221 single-family units in April, slightly lower than the 227 in April 2009.

However, for the four-month period, the permit unit total rose from 524 in 2009 to 822 in 2010. By comparison, the single-family unit total for January through April of 2005 was 2,985.

The construction research board reported that California building permit trends generally mirrored what was seen in San Diego County. Statewide, overall private construction valuation for the four-month period, at just over $7.7 billion, rose 4 percent from a year ago, with all of that increase attributable to residential building.

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