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Local homebuilders see new-home market starting up again by mid-year

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Two of San Diego County's primary homebuilders see the housing market here beginning to pick up again by the middle of the year, despite the departure of several publicly traded homebuilders and the lack of new master-planned communities scheduled.

According to Mick Pattinson, CEO and president of Carlsbad-based Barratt American, the middle of this year will mark the beginning of the building recovery.

Pattinson along with Bill Davidson, president of Del Mar-based Davidson Communities, and Tony Pauker, regional president of The Olson Company, were part of a panel discussion during the San Diego Chapter of the Appraisal Institute's recent 2007 Economic Forecast.

Davidson, agreeing with Pattinson, said it would take another four to five months before building activity picks up and the correction with the industry occurs.

"I think most of us (homebuilders) quit building houses last summer," Davidson commented, adding the majority of master-planned communities in the county are already built out and few such communities are in the planning stages.

One proposed master-planned community is Barratt's Fanita Ranch in Santee, a 1,380 single-family home community. Pattinson said he was hopeful that Barratt will complete the entitlement process and start grading the property late this year.

"We think the timing for that (the building of Fanita Ranch) will be excellent," Pattinson said, adding Barratt anticipates being profitable in 2007, which will result from the homebuilder cutting back on the amount of homes built and selling land which they own and have not built on to REITs.

Currently, Barratt has a standing inventory of 30 homes/units, with the majority of those located in its Aragon development.

"Our inventory is not a problem," Pattinson stated.

Davidson Communities, which focuses on building high-end homes, is looking to build some mixed-use developments.

"We don't have anything in between a standing house and dirt (currently)," Davidson said, adding the company has a standing inventory of 25 homes. "Our goal is to be where the public companies aren't," Davidson said.

He said it is difficult for the company to compete with publicly traded builders who can offer 30 percent to 40 percent home-purchase incentives to prospective buyers.

The Olson Company, which focuses on affordable first-time homebuyer products, will continue to focus on infill neighborhood projects.

"Our segment of the market continues to be strong regarding demand," Pauker said, citing only one or two units of standing inventory.

During the first half of the year, Pauker predicts buyers will become more confident and the negative notion surrounding the housing market will fade. He also forecasted home prices should remain flat for at least two years.

All three panelists said their companies would not lower prices because it would result in wiping out a homebuyer's equity.

Another topic discussed by all three panelists was whether they are looking to build in south Riverside County because of the lack of available land in San Diego and the growing population to the north.

Barratt has already built a nearly 1,400-home master-planned community in Perris and is currently building somewhere around 700 to 800 homes in the French Valley.

Davidson has several projects in the region and is attempting to increase its housing stock there. Olson, however, is not involved in that market.

"That area is not focused for our niche," Pauker explained, adding the company has been in talks with some of the desert cities regarding the construction of work force housing on publicly owned land.

The panel discussed construction costs, which in the past have increased rapidly in a short period of time.

To give perspective regarding the amount of increases builders have experienced, Pattinson said when the company built Metrome in downtown San Diego, the construction costs were about $200 per square foot. Now, about three or four years later, the costs for a similar project the company is eyeing in downtown would be $266 per square foot.

He also cited the recent adoption of new stormwater regulations for construction sites as a construction cost moving forward.

Pauker said he's seen a 10 percent decrease in costs spanning the past six to eight months, but the company is a stick builder and mainly uses lumber in its developments.

Despite decreasing prices in lumber, Davidson said he's scared about underestimating the current discount in construction costs moving forward.

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