Calif. Home Building Falls 12.8% in July

New home-building activity in California fell sharply last month to the lowest level in two years, but analysts said the drop is more of a seasonal shift than a sign of declining construction in the residential market.

In July, builders statewide pulled permits at an annual rate of 124,600, down 12.8% from a year earlier, according to a report released this week by the Construction Industry Research Board in Burbank.

The decline followed brisk activity in June, when permits rose 25% from a year earlier, largely because of a big push in apartment building. The tally of home-building permits shows the amount of development that is about to get underway, but the monthly figures have been particularly volatile this year.

“The numbers will pick up again in August,” said John Burns, an analyst at Meyers Group, an Irvine real estate research firm.

California this year has been on pace to build more residential units than a year ago, making it one of a handful of states where home building has been increasing. The rise in mortgage rates over the last year has slowed production of single-family homes, and analysts are projecting continued declines in residential construction.

But California’s economic and population growth exceeds national averages, and economists are expecting a notable increase in apartment and other multifamily building.

Developers are reacting to the high demand. Analysts welcome the trend, because more attached units eventually could help curb the rapid run-up in home prices and rents in many parts of the state.

“This increasing supply should alleviate some of that pressure,” said Esmael Adibi, a Chapman University economist.

Analysts say that a rate of production of 220,000 to 250,000 units a year is required to accommodate California’s projected growth. But given the July permit data, analysts said, builders are on target to construct 156,000 homes this year, up 10% from last year.

“I don’t think we’re slowing down,” said Dennis Meyers, principal economist for the state Department of Finance.