Costa Mesa Builder Has Rosy Outlook : Housing: Although third-quarter profits fell, Standard Pacific reported orders for new houses are way up.

Home builder Standard Pacific Corp. reported Wednesday that, although its third-quarter profit fell, orders for new houses were way up.

That earnings were off is no surprise considering that the housing industry has been brutalized by the lingering recession. But that appears to be changing, finally.

“Today’s orders are tomorrow’s deliveries,” said April J. Morris, Standard Pacific’s chief financial officer.

Standard Pacific is not alone in looking toward 1994 as the year the Orange County real estate market turns around.

Builders and real estate experts say that the market finally appears to have stabilized and predict that demand for new houses will start climbing. In fact, it is already showing signs of doing so.

Builders are reporting heavy traffic at new projects.

“I’ve got to tell you, our optimism here is pretty doggone strong,” said Leon Swails, chief executive of Bramalea California Inc. The Irvine builder’s homes range from modestly priced dwellings for first-time buyers to higher-priced, custom-made houses in Orange and adjacent counties.

“We are noticing that there is a much higher degree of optimism than there has been in the past few years,” Swails said.

And at Standard Pacific, even the bad news was really good news in disguise. The company reported third-quarter profit of $29,000, compared to $466,000 for the same period a year earlier. Revenue was also down: $70.7 million for the quarter, compared to $79.6 million a year earlier.

Though that sounds glum, real estate analysts pointed out that the lower earnings were to be expected considering Standard Pacific’s yearlong strategy of dumping its inventory at break-even prices.

“I had actually hoped for this low (profit),” said Barbara K. Allen, a real estate analyst with the brokerage Donaldson Lufkin & Jenrette in New York. “It means they got rid of a great proportion of zero-margin housing.”

Zero-margin housing is a real estate term for units that are earmarked for sale at break-even prices, with incentives such as free upgrades and amenities, as a way to bring down inventory.

The brokerage recently recommended Standard Pacific’s stock as a “buy” for investors.

For the first nine months of the year, the company reported earnings of $193.2 million, or 7 cents a share. That compared to $219.7 million, or 13 cents a share, for the same period last year. Nine-month revenue was $193.2 million, down from $219.7 million.

Standard Pacific, as well as other builders, are betting that low inventory--unsold houses available to buyers--will mesh with greater demand for housing next year, and that, in turn, will push up prices. Real estate analysts are hoping that will propel the market out of the doldrums.

“We have been up and down a couple of times,” Allen said. In California, she said, the market “has looked like it was recovering and then it backed away. . . . We are hoping this is for real. After three years, it ought to be.”

At Standard Pacific, at least, recovery does seem to be underway.

Chief executive Arthur Svendsen pointed out that the company had 285 new-home orders for the third quarter, compared to 175 for the same period of 1992 and just 142 for the third quarter of 1991.

In addition, Svendsen said, the company now has 371 houses on which purchases are proceeding.

Those figures are in line with the latest data from TRW Redi Property Data Services, which surveys the Southland real estate market every month.

TRW market analyst Nima Nattagh said that Orange County’s new-homes market is holding its own. For the first nine months of this year, 3,880 new homes were sold, down a statistically insignificant 0.2% from the same period last year. That is good news, Nattagh said, considering that new-home sales are competing with a glut of resales and property foreclosures.

“For all intents and purposes, it is pretty much stable,” Nattagh said of the market. “At least the decline has slowed significantly.”

Real estate analysts also predict a sustained upsurge in 1994 as inventory is further depleted and foreclosures wane.

“We’ll see more new housing projects,” said Craig Silvers, an analyst with investment house Crowell Weedon & Co. in Los Angeles.

Analyst Allen agreed, adding that, with more stability on the horizon in the real estate market, Standard Pacific’s stock should jump as much as 15% during 1994.

As if anticipating that rebound, Standard Pacific’s stock gained 12.5 cents a share Wednesday to close at $8.875 a share in New York Stock Exchange trading.

“This should be the worst quarter they’ve had,” Allen said. “It’ll definitely go up from here.”

Standard Pacific Earnings Decline

Standard Pacific Corp. reported a $29,000 profit for the quarter ended Sept. 30, down 94% from the same period last year. Profit for the first three quarters of 1993 also declined, falling 41% below 1992. Amounts in thousands of dollars, except data per share:

3rd qtr 3rd qtr 9 months 9 months 1992 1993 1992 1993 Revenue $79,636 $70,726 $219,733 $193,198 Net income 466 29 3,727 2,205 Per share 0.02 0.00 0.13 0.07

Source: Standard Pacific Corp.; Researched by JANICE L. JONES / Los Angeles Times

Sales Flat, Prices Down

The number of new homes sold in Orange County from January through September was nearly the same as in 1992. But the average sales price dropped 6% since last year’s comparable period.

New homes sold:

1993: 3,880

Average price:

1993: 244,285

Source: TRW REDI Property Data; Researched by JANICE L. JONES / Los Angeles Times