Home Builders Rein in Supply

Home building has slowed abruptly in the Inland Empire as the building industry seeks to adjust supply to dwindling demand from buyers, according to data released Thursday by the California Building Industry Association.

The number of permits that builders obtained for new houses in Riverside County last year plunged 26 percent -- to 25,246 from 2005's 34,134 -- the association said, citing information collected by the Construction Industry Research Board.

The decline was smaller in San Bernardino County, where 13,857 permits were sought in 2006. The total was nearly 17 percent less than the 16,684 sought in 2005.

Alan Nevin, the association's chief economist, attributed the decline in home construction statewide to a "normalizing market." He said builders have scaled back on production to concentrate on selling the homes that are already built.

"I think builders have finally accepted the significance of the downturn by dramatically cutting any more releases at their new-home projects," said Steve Johnson, a director with MetroStudy, a Riverside real-estate consulting firm.

Johnson said his firm, which tracks home-construction starts, found that work began on 31,763 homes in the two-county Inland region last year, 19 percent fewer than in 2005.

Meanwhile, he said, builders "are working feverishly to rid themselves of the housing they built." To lure buyers, Johnson said, builders initially offered an array of incentives, including free upgrades, but they ultimately dropped prices by as much as 10 percent in housing tracts farthest from job centers.

By cutting profit margins, he said, builders managed to increase the sales of new homes in Riverside and San Bernardino counties to 36,862 in 2006 from 34,863 in 2005.

Nonetheless, Johnson said because there was so much construction already in the pipeline last year, the number of new homes built and unsold more than doubled to 7,542 at the end of 2006.

Nevin predicted that California's housing production in 2007 will continue at the same pace as 2006, which he said is closer to the historic average.

Weakness also has extended to the region's resale market, where the California Association of Realtors reported Thursday that combined December sales in Riverside and San Bernardino counties dropped almost 41 percent from a year earlier.

Still the association reported that the median price of a resale home in the region in December was $410,000, nearly 4 percent higher than a year earlier.

The National Association of Realtors reported Thursday that sales of existing homes nationwide were down 8.4 percent from 2005, when 7.08 million existing homes were sold -- the fifth straight year that sales hit an all-time high.

David Lereah, chief economist for the Realtors, predicted that sales have bottomed out and should start a slow rebound in 2007. "With fingers and toes crossed, it appears that we have hit bottom in the existing-home market," Lereah said.