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As the year draws to a close, one of the most common debates around California dinner tables is unlikely to change: Will the real estate bubble suddenly pop or will the air simply trickle out of it? The consensus among valley builders is that while there might be some slowdown, the market for new residential construction will remain strong in 2006.
"Maybe the prices won't climb as high as they did in 2005, but I think the numbers will remain the same," says Bill Zoslocki, president of the Building Industry Association of Central California (BIACC). The BIACC has 350 members in Stanislaus and Merced counties and is based in Modesto.
In October, the most recent month for which data is available, there were a total of 14,425 building permits issued throughout the state, according to the Construction Industry Research Board (CIRB), which is based in Burbank. That number was down 32.3 percent compared to the month before and down 15.8 percent from October 2004.
Stanislaus County bucked the statewide trend: 428 permits were issued in October, up 39 percent from the month before and up 26 percent from October 2004, according to CIRB.
Ben Bartolotto, CIRB's research director, says the numbers will most likely decrease during the winter months. Historically, January is the slowest month for new permits, according to Bartolotto. "There are a number of seasonal factors. New construction doesn't usually begin during the rainy season," he says.
Jeremy White, vice-president of The Grupe Co. - a Stockton-based builder with communities throughout the valley - says he is "optimistic" for 2006. That isn't to say he hasn't seen some decline in the number of potential customers touring walk-through homes and visiting the company's sales offices. Traffic is down about 10 percent from a year ago and closer to 2001 and 2002 levels, White says.
"Sales have slowed down considerably, but they are at typical seasonal levels," he says. "We're not seeing waiting lists like we did in the past."
Despite obvious signs of winter and a slowdown in some markets, new construction is continuing at a good pace on whatever land developers can find, according to Zoslocki, who also owns Bill Zoslocki Construction Co. Inc. Much of the demand continues to come from land shortages and the long-running housing imbalance in the San Francisco Bay Area, he says. There are more people who want to buy than there are affordable homes.
"As long as the greater Bay Area market isn't doing what it needs to be doing, that's going to drive our market," Zoslocki says. Also, retirees continue to flock to the area after selling their homes for "a million plus," he adds.
While builders have been concerned about rising lumber costs in response to Hurricane Katrina, international demand for supplies, especially with all of the explosive growth taking place in Asia, is also causing a marked impact on costs and supply availability, Zoslocki says - and not just for lumber. Cement is also in high demand. Katrina only compounded the problems as nearly 12 percent of cement imports came through the ports in New Orleans, which are only slowly coming back to life. California is one of the front-running states in terms of cement consumption and was already facing a shortage before Katrina hit.
One trend that Zoslocki has seen starting to emerge in some of the outlying areas of the valley is smaller lots and homes with less square-footage. Not that smaller is always the case. "It doesn't mean that they're not still building castles at the same time," he says, adding that location often drives the size.
Suzanne Candini, president, CEO and owner of Stockton-based Florsheim Homes, saw the trend toward smaller homes coming a couple of years ago. In response, many of the valley homes her company is currently building and will construct in the coming year are on smaller lots, some only 2,500 square feet.
"People are commuting. They're busy. Not everyone wants a big backyard," Candini says.
The Grupe Co.'s White has also taken note of the trend. "There will be more of these smaller lots than there have been in the past," he says. One of the company's strongest-selling communities, River Pointe in Waterford, features smaller lots and homes.
"(River Pointe) is doing really well," White notes. "The lower-priced markets are still very strong." Homes at River Pointe start in the high $200,000s. Their sizes range from 1,614 to 2,788 square feet. At Grupe's Reflections community in Patterson, homes start in the high $400,000s and range from 2,098 to 3,342 square feet. "The higher end has slowed down more," White says.
Zoslocki has also seen another trend emerge in the valley: better master planning.
"In 2006, we'll see a bit more of a trend toward master planning. It's just the opposite of what everyone calls sprawl," Zoslocki says. Rather than homes being built without any regard for the availability of green areas, shops and schools, these factors are being taken into consideration in the early stages of planning, he says, adding, "My industry recognizes that the market wants that, and it is responding."