Home builders mothball projects
As troubles rise, major several Sacramento-area builders are shutting down. Pardee Homes has halted its planned 660-home Natomas project, but has $200 million invested in the region and has future plans.
Home builders mothball projects
As troubles rise, major several Sacramento-area builders are shutting down
November 9, 2007
Now, just five months later, Pardee has closed the project. Sales offices that opened during a national subprime loan crisis that quickly worsened into a credit crunch have been shut. Building crews have been laid off and deals made with only four buyers canceled. Three other regional builders have done the same in recent weeks.
Their actions are the latest indicator of how brutal the Sacramento market has become for area home builders as they fight one another for sales. Builders are wrestling with swollen unsold inventory, buyers who can't get loans and a record glut of existing homes for sale. Analysts say builders are on track to sell their fewest homes in a decade and will likely sell even fewer next year. And for companies like Pardee that arrived at the height of the boom, bought land at inflated 2004 prices and started sales in a slumping market, it's especially tough.
"We have the eight models and poured eight foundations," said David Ragland, chief of Pardee's Sacramento division. "Sales were slow, and we never started any houses. We plan to re-emerge and reopen in a year or a year and a half in a market with less competition."
Ragland said Pardee, a subsidiary of Washington-based timber giant Weyerhaeuser Co., isn't leaving town. He said the company is committed to a region where it has invested $200 million in land and has plans for 4,000 houses, condos, town houses and apartments in Natomas, Rancho Cordova and north Stockton. Pardee is a longtime Southern California home builder that also has expanded into Las Vegas.
Ragland said the firm decided not to play the game played by the biggest Sacramento builders.
"Pricing has continued to erode through specials and incentives," said Ragland. "It probably makes more sense to wait while KB Home, K. Hovnanian and Lennar slug it out" in Natomas. Ragland said as the supply of developed lots dwindles in Natomas, the market will stabilize.
Folsom building industry analyst Greg Paquin reported last month that Natomas remains a strong regional submarket despite the overall slump. New-home sales in July, August and September jumped 12 percent â to 317 from 283 â from the same time a year ago, he said. Most popular are town houses and condominiums priced between $225,000 and $275,000.
Pardee originally priced its single-family homes in the low $300,000s to the high $400,000s.
Milwaukee-based Homes by Towne also has mothballed its 145-home project in Natomas called Sky Park at Natomas Field and a 50-home project in Elk Grove called Spring Gardens. The builder has stopped construction at its 227-home Yuba County project called River Landing at Plumas Lakes.
"While there are some builders in the marketplace who can radically adjust pricing, we are a more conservative and stable company that takes a longer view of home building and our place in the community," said Jeff Pemstein, the builder's Sacramento division chief in an e-mail "We believe that chasing other builders in the marketplace for who can artificially deliver the lower price product is not good for the customer and not good for business."
Rocklin-based Nouveau Homes has taken similar action with a 51-home project in Lincoln called Crystalwood. It was the builder's only active development, according to Costa Mesa-based building industry tracker Hanley Wood Market Intelligence.
"They can't compete with the likes of the public builders out there who are slashing prices and taking whatever losses they need to hit their corporate numbers," said Ron Mancuso, an executive with the Sacramento-based Advantage Group, which markets Crystalwood for Nouveau.
Construction and sales also stopped at Elk Grove's 450-home Monterey Village as Granite Bay builder Dunmore Homes works to sort out its troubled finances. So far there is no timeline to resume construction, said John Slaughter, Dunmore's vice president of construction and operations.
"They can't compete anymore. All these builders, they aren't making any money on any of these homes," said Kathryn Boyce, analyst for Costa Mesa-based Hanley Wood Market Intelligence. "They're losing money on all the homes they're selling right now."
Ironically, Boyce said, it's the aggressive price cuts and deals that builders are using to woo buyers that are making more buyers leery. She said many fear their houses will be worth less a week after they unpack.
"That's going to have to stop at some point," said Boyce. "But until then, these other builders that aren't as large are going to say, 'Enough's enough. I'm not going to do this anymore.' "
For KB Home, one of the nation's largest home builders, the plan is simple.
"The strongest and most capable operators are going to be the ones left at the end of the day," said the Sacramento territory president, Barry Grant.
KB is the top builder so far this year in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to Hanley Wood statistics. The region's dominant five home sellers all come from a list of the nation's most powerful and biggest builders: Dallas-based Centex Homes, Miami-based Lennar Corp., Atlanta's Beazer Homes and D.R. Horton Inc. of Fort Worth.
"As public home builders we've shown a willingness to sharpen our pencils," said Grant about the harsh competition. "It's unfortunate that it's to the demise of smaller builders."
Ragland said Pardee still plans to finish a 135-unit apartment complex at its Natomas site to meet affordable housing requirements. And it will keep working to gain city approvals for projects planned in Rancho Cordova and Stockton.
But for now it's on hold at the flagship infill project where Pardee hoped to find a niche with its reputation for energy efficiency. When that hold is lifted is up to the market.
"Most prognosticators say '08 is going to be the year of foreclosures and find some balance," Ragland said. "And '09 is the transition year."
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