Most Builders See Rebound in ’92
The two-year slide in the Southland’s new-home sales will end this year, as first-time buyers take advantage of softer prices and the lowest mortgage-interest rates in two decades.
At least, that’s the consensus of nearly 120 Southern California developers who took part in the 21st annual Times survey of residential builders.
Of the 124 builders who took part in the poll, 119 provided both sales data for 1991 and made projections for ’92.
Those 119 builders expect to sell a total of $6.97-billion worth of new homes in the eight-county Southland area this year. That would be a 21.3% increase from their sales in 1991, which was the worst year for housing since the 1982 recession.
The 119 developers said they will build a total of 34,201 homes in Southern California this year, a 13.3% increase from the 30,187 they built in 1991.
And in yet another sign that builders are more upbeat than they were a year ago, nearly three-quarters of the respondents said they’ll have higher sales revenue this year than in 1991. A year ago, only 54% of the builders were forecasting an upturn in sales.
“This year won’t be a ‘boom year’ by any means, but it will be a little better than 1991,” said Peter Ochs, president of homebuilding giant the Fieldstone Group.
Builders received even more cheery news last week, when the Commerce Department said sales of new homes rose 13% in January. It was the biggest one-month sales increase in nearly a year.
But while builders are entering 1992 on a more upbeat note than a year ago, they’re also voicing concern about a variety of factors that they fear could send their sales sliding again.
The survey asked builders to rate five factors that are impacting their business on a scale of one to five, with one meaning “did not affect me at all” and five meaning “affected me a great deal.”
Nearly 90% of the developers said a combination of the “soft economy and buyer hesitancy” hurt their revenue last year, and many worried that those same troubles will cut into their sales in 1992.
The No. 2 problem cited by builders for last year’s sales and construction slowdown was “difficulties with project financing,” which had ranked last on the previous year’s survey.
Many builders complain that the savings and loan crisis, coupled with stricter lending guidelines, has made it difficult for them to get the construction loans needed to build new housing tracts.
The one-two punch of the sluggish economy and tougher lending standards has dealt a near-knockout blow to many developers.
“The depressed economy has kept most buyers away and the unavailability of construction financing has made it impossible to produce houses for the few buyers that exist,” summed up Robert Buie of Buie Corp., a mid-sized builder headquartered in San Diego.
“Without construction financing, we are all dead,” wrote B. Lynn McCune of Kylcor, a small builder in Long Beach. “Without buyers who are not afraid of losing their jobs, we can’t sell. Help!”
Governmental fees that builders must pay before they’re allowed to begin a new housing tract were their No. 3 headache, followed by buyer-affordability problems and growth constraints.
The voluntary survey, which was conducted in January, asked builders about their activity in eight counties: Kern, Los Angeles, Orange, Riverside, Santa Barbara, San Bernardino, San Diego, and Ventura. The rankings are based on each company’s 1991 sales revenue.
The William Lyon Co. topped the list for the fifth year in a row, based on its 1991 sales of $668.2 million.
But the company expects its revenue to drop to $450.066 million this year, as it builds only 1,966 units compared to the 3,738 homes it built in ’91.
The Fieldstone Group was No. 2, with $323 million in sales. The company expects a modest improvement in ‘92, forecasting $335 million in revenue and the construction of 1,300 homes.
Lewis Homes, ranked No. 7 last year, moved up to the No. 3 spot on this year’s survey.
Upland-based Lewis, which built 1,215 homes last year and logged $285.09 million in sales, is representative of many firms that took part in this year’s poll.
Even though the company expects to build about 100 more homes this year than it did in ‘91, it expects sales revenue to drop 9% to $260 million.
“We’re building a lot of less-expensive homes for first-time buyers this year because that’s where most of the action is,” said Randall Lewis, the company’s executive vice president. “Mid-priced homes and higher-priced homes aren’t selling nearly as well.”
Indeed, more than half of the builders surveyed said they were either planning smaller homes or eliminating many amenities to keep home prices down.
And 51% said they’ll concentrate on building houses priced under $200,000--homes considered “affordable” by Southland standards.
Although builders who responded to the survey predicted an overall improvement in sales this year, no one expects the modest upturn to do much to improve California’s sluggish economy.
About 112,000 construction workers in the state lost their jobs last year, and many builders said they would have more layoffs in ’92.
The Construction Industry Research Board estimates that another 4% of the state’s 541,000 construction workers will be thrown out of work this year even though overall housing starts will rise 21%, to 128,000 units.
“A lot of the increase we’ll see this year is going to be in the apartment sector, and it takes a lot less manpower to build a 20-unit apartment building than it does to build 20 single-family homes,” said Ben Bartolotto, the board’s executive director.
“Housing isn’t going to pull this state out of its recession--at least not this year.”
Even builders who haven’t resorted to layoffs are struggling to cut costs.
Some developers are pressuring their subcontractors to reduce the cost of their materials and labor. Others are simplifying their floor plans to eliminate expensive design elements, such as fancy roofs and small nooks.
Still others are trimming their expenses or trying to boost sales in more offbeat ways.
For example, the slow resale market had been hurting sales at Driftwood, a 107-unit housing development for “move-up” buyers in Ventura where prices range from $290,000 to $390,000.
“People who couldn’t sell their current homes couldn’t buy one of ours, so we’ve started a ‘trade-in’ program,” said Michael E. Giordano of Trent Inc., the company that’s building Driftwood.
“It’s not much different than buying a car. You trade in your old one for one of our new ones and get a loan for the difference in value.”
In a similar vein, Coast Construction, which also caters to “move-up” buyers, recently offered lease-options on its homes: Customers could rent a new house worth up to $280,000 and take up to three years to decide whether they want to purchase it.
“If they buy it at the end of the first year, we’ll apply half the rent they paid toward their down payment,” said Nat Harty, Coast’s president.
To ease the concerns of would-be buyers nervous about the future of the economy, several builders said they’re now offering special “mortgage-payment insurance” plans that will cover a buyer’s monthly payments if he loses his job.
But Presley Co., one of the Southland’s top 20 builders, said that it’s going the competition one better. Not only has it begun a mortgage-insurance program, but it’s also offering a free, five-year warranty plan that covers a variety of possible problems, from structural defects to faulty faucets.
Still, some developers said they aren’t taking any chances until they’re sure that the worst of times is over.
“We were planning to start two new projects this year, but we canceled them both and forfeited the deposits that we had made” on the land, said Rick Doremus of EPAC Housing Inc. in Costa Mesa.
“It cost us some money, but it was cheaper than building the homes and then having them sit empty.”
The survey also asked builders where they will be putting up new homes this year. Nearly 60% of the respondents said they would be building in the western portion of Riverside County, which includes fast-growing Temecula and Moreno Valley.
Exactly 48% said they’ll be building in southern Orange County, an area that includes Irvine and the sprawling, master-planned community of Rancho Santa Margarita.
Those areas were followed in popularity by Los Angeles County, northern San Diego County, Ventura County and the southern portion of San Diego County.
Since many parts of the Southland remain overbuilt, developers said they’re doing much more market-research than they were a few years ago to avoid building homes with floor plans no one wants or features that buyers aren’t willing to pay for.
A surprising number of builders also said they’re gearing their homes to unusually narrow segments of the market.
Lan Ron Builders, for example, is developing a 45-unit tract in the desert town of Victorville: It hopes that its low prices and built-in security systems will appeal to older, safety-conscious buyers who can’t afford to buy a retirement home in Palm Springs or other pricey retirement areas.
Cal-Coast, meantime, has targeted the growing number of wealthy Asians who have been buying high-priced homes on the Palos Verdes Peninsula.
But clearly, the developers who are most optimistic about 1992 are those who specialize in building less-expensive homes for first-time buyers.
“I can’t speak for the entire industry, but I think ’92 is going to be a great year for our company,” said Bruce Karatz, chairman and chief executive of Kaufman & Broad Home Corp.
The Los Angeles-based company completed 1,257 total units last year and was the second-largest builder of single-family homes. But it only ranked sixth on the revenue list because most of the homes it builds sell for less than $200,000.
Karatz said K&B; expects to build another 2,440 homes this year, which would virtually double its ’91 output.
But other builders aren’t so sure that this year will be any better than the last.
“If ’91 was the year of singles and doubles and no home runs, then ’92 is going to be the year of bunts, walks and stolen bases,” said F. Daniel Rigney, president of Rigney Development Group in Woodland Hills.
“I just don’t see the home-building business rebounding anytime soon.”
