California Housing Production Hits 7-Year Low : Permits: Building industry trade groups report that the state’s residential building permit total continues downward spiral.

The housing slowdown that began last fall showed no signs of improvement in May, with California housing production falling to a seven-year low, according to reports from building industry trade groups and government agencies.

California’s annualized residential building permit total was 172,000, off 31.1% from the May, 1989, annual rate of 249,600 permits, according to Richard L. Hall, president of the Sacramento-based California Building Industry Assn.

The May, 1990, annual permit rate total--including both single-family and multifamily housing--means that 172,000 units will be built if the May pace continues through the rest of the year. The May, 1990, total was the lowest for any month since the 162,300 annualized rate of May, 1983, he said.

Hall, an Orange County home builder, and other industry observers attribute the decline in new housing construction--as measured by permits, an indication of future construction, and housing starts, a more current snapshot of actual building activity--to high mortgage rates, a sluggish resale market, a tightening of mortgage qualification standards and the general decline in the economy.

Despite the May residential figures--and indications from the U.S. Commerce Department and the National Assn. of Home Builders (NAHB) that the building decline is not over--Hall is optimistic about a rebound in residential construction.

“The slowdown has gone deeper than we in the industry had anticipated, but I feel we’ll soon have a downward movement in interest rates which should spark some upward action in home buying,” he said.

Two situations--the slowdown in resale homes and a shortage of new houses for entry-level buyers--have contributed to the slump in new home construction, Hall said.

The stagnant resale market has affected California’s move-up housing segment, the hottest industry activity sector in recent years, Hall said, because potential move-up buyers who cannot sell their existing homes cannot buy the move-up homes that are available in ample supplies in all markets.

Entry-level houses are available only in outlying areas where land is less expensive, Hall said.

Both situations are responsible for May’s annualized rate of 113,000 single-family starts, a decline of 27.1% from the 165,200 starts in May, 1989, he said. The annualized rate means that if the rate continues through the rest of the year, a total of 113,000 new single-family houses will be built.

But single-family starts are forecast to total 130,000 this year, down 20% from 1989, while multifamily starts will total 74,000, down only 1.5% from 1989, according to Ben Bartolotto of the Burbank-based Construction Industry Research Board.

This more optimistic forecast represents the housing industry’s view that interest rates will decline, mortgage money will become more available and that the resale market will improve, enabling buyers to purchase new houses, according to Bob Norek of the California Building Industry Assn.

Still, the forecast of 204,000 single- and multifamily housing starts in California this year represents a scaling-down from the previous forecast of 215,000 starts, Bartolotto said. The new forecast is down 14.2% from the 237,700 single- and multifamily starts constructed last year, he said.

Nationally, the housing production decline continued in June, based on housing starts, which are available sooner from the U.S. Commerce Department because they are based on a sample of permits, according to Bartolotto. Housing starts dipped 2.3% from May to June to a seasonally adjusted annual rate of 1.177 million units, according to the National Assn. of Home Builders.

“We are hoping that some decline in interest rates will generate activity, but unfortunately there are a lot of fundamental problems that are eating away at the housing markets and we aren’t going to have a healthy housing industry until we solve them,” according to NAHB President Martin Perlman.

Regionally, the West and the Northeast have been most affected by the downturn in building, Perlman said. Activity in the West was down 34.8% this June from June, 1989, while starts were down 32.1% for the same period in the Northeast, he added.