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RISMEDIA, June 4, 2007-(MCT)-High gas prices have started to discourage new-home buying and construction in the Inland Empire, the California Building Industry Association said in a report this week.

Officials released a midyear housing forecast at the group’s annual convention in San Francisco that projects 135,000 to 150,000 building permits this year statewide, down from the 155,000 to 175,000 permits the association had projected in January.

Nearly half the downward revision was due to a fall-off in sales and construction in Riverside and San Bernardino counties, said its chief economist, Alan Nevin.

“There has been a massive drop as commuters from elsewhere in Southern California have stopped coming to Riverside County,” the San Diego-based economist said.

“It’s largely a function, we think, of gas prices, because most of them commute at least an hour and sometimes two to three hours a day, and (the price of) gas has just gotten to them.”

In his report, Nevin said the rise in fuel prices translates into a $40,000 to $50,000 reduction in home-buying power, particularly in households where both adults are working and facing long commutes to their jobs in Los Angeles, Orange and San Diego counties.

“Thus, the savings on their mortgage payments originally gained by buying in Riverside (or) San Bernardino County quickly dissipates,” he said.

Elsewhere in the state, construction is about on target with projections the association made in January, Nevin said.

San Diego County will have 9,000 to 10,500 new houses, condominiums and apartments permitted this year, compared with the 10,000 to 12,000 projected in January.

Nevin attributed the dip to reluctance on the part of some builders to start infill, low-rise condo projects because the extra cost of underground parking garages cannot be recouped at current price levels.

“When we look around at Orange and San Diego (counties) in particular, we see a great slowdown in that product,” he said. “It’s somewhat of a high-risk product.”

Nevin also said California can expect 180,000 to 210,000 construction jobs added this year, up from an earlier estimate of 155,000 to 175,000. San Diego’s estimate for the year went from between 10,000 and 12,000 to between 13,000 and 15,000 jobs.

He said an expected dip in jobs has not occurred because of an upsurge in remodeling, commercial work and infrastructure projects — the latter boosted by last year’s voter approval of statewide construction bonds.

The Construction Industry Research Board in Burbank reported separately that San Diego housing permits through April totaled 3,095 units, down 14.7% from 3,630 in the same period last year, and down 57.8% from the recent peak of 7,335 in 2003.

However, nonresidential construction permits were worth $471.7 million from January through April, down only 5.7% from $500.1 million a year ago, the most recent peak, the board reported.

Standard & Poor’s warned that mortgage problems could prolong the woes in the home-building industry.

“Heightened uncertainty regarding the ultimate timing of a recovery has turned our rating bias on home builders decidedly negative,” S&P credit analyst James Fielding said in the assessment issued yesterday.

Also yesterday, the Office of Federal Housing Enterprise Oversight reported that home-price appreciation nationally “remained slow but positive” in the first quarter of 2007 — up 0.5% from the fourth quarter of 2006 and 4.3% higher than in the first quarter of 2006.

But the agency said California was one of seven states that experienced home-price depreciation in the January-March period. San Diego County ranked 266 out of 285 metropolitan areas, with a 1.9% decline in prices over the past year and a 1.1% decline for the quarter, but an 83.5% increase over the past five years.

DataQuick Information Systems reported in mid-May that San Diego County’s overall median sales price for April at $490,000 — $15,000 less than a year earlier, but well ahead of the $295,000 level of five years ago.

Asked about the rising problem of mortgage defaults and foreclosures, Nevin said he expected only about 5% to 10% of subprime mortgages — those generally given to buyers with credit or income issues — to go into default statewide.

“That’s a small part of the market, even in California,” he said.

But Nevin acknowledged that those first-time buyers who hold on to their homes will have a difficult time moving up to bigger homes in three or four years, given their financial condition and expected low appreciation rates.

Consequently, builders probably will construct smaller, more affordable move-up homes than they have in recent years.

“The will to buy is still very strong,” Nevin said, adding that buyers with a FICO score exceeding 600 (on a scale of 300 to 850) probably will be able to qualify for zero-down-payment and 5%-down loans.

The Associated Press contributed to this report.
Copyright © 2007, The San Diego Union-Tribune
Distributed by McClatchy-Tribune Information Services.

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