The Upside of a Down Year for OC Homebuilders

Orange County Business Journal
By Daniel D. Williams

New-home sales for Orange County’s largest homebuilders fell 14% to 6,100 last year, according to this week’s Business Journal list. But it wasn’t for lack of demand, industry officials say.

The reason for the drop: lack of entitled land to build on. In a telling sign, the number of projects the largest homebuilders worked on last year dropped 12% to 173 from a year earlier. At the top of the list is Irvine-based Standard Pacific Corp., with 563 new-home sales in the county, a 10% decline from last year. Despite the drop, those sales gave Standard Pacific a slim margin for top-of-the-heap bragging rights. Last year it was No. 3.
The list ranks homebuilders based on OC home sales in 2001 and is based on data from Irvine-based real estate consultant The Meyers Group.

After holding the top spot in 2000, Lennar Homes California Inc., part of Miami-based Lennar Corp., dropped to No. 2 with 561 home sales, a 42% slide. But, as with other homebuilders, Lennar’s drop is due to a lack of entitled land, rather than building concerns or low demand. "Our sales are going great," said Jeff Roos, Lennar’s re-gional president. "But there’s definitely an ongoing diminishing supply. I don’t see that changing in the foreseeable future." Lennar’s sales trend bodes well for this year, Roos said, as new homes come on the market in developments such as Amerige Heights in Fullerton and Ladera Ranch near San Clemente.

While homebuilders say demand was relatively strong last year, they’re seeing a pickup this year after a post-Sept. 11 lull (see story, page 23). And, unlike last year, builders have a couple of big developments coming online this year-including Amerige Heights and projects in Yorba Linda, Orange and elsewhere-that could push up home sales in 2002.

One variable: interest rates. "Interest rates will increase, but not as much as some think, because there is not the threat of inflation right now," said Frank Foster, chief executive of Newport Beach-based homebuilder Fieldstone Communities Inc. "Rates have not impacted sales, so far. And I don’t think they will due to the supply constraints."

The process of getting land approved for houses has grown more difficult with increased policing by the federal government, builders say. They cite the federal government’s efforts to designate critical habitat for various types of threatened animals.

And the problem is getting worse, according to Rob Thornton, an attorney with the Irvine office of Nossaman, Guthner, Knox & Elliott LLP, a law firm specializing in land use and environmental issues. "Currently, we are satisfying only 65% of our housing needs," Thornton said.

And the number gets smaller as new areas are put off-limits for homes, impacting builders who want to meet demand and buyers who pay steeper price tags. Last year, OC home prices increased 18%, according to Trish Moore, executive director with the Orange Coast Association of Realtors. The housing imbalance should drive more gains this year. While that’s good news for homeowners, it makes things tougher for prospective buyers.

One way to satisfy more homebuyers is through affordable housing. Standard Pacific said it created an urban development group, which targets higher-density projects. We’ll build housing at up to 50 units to an acre" in areas outside OC, said Scott Stowell, president of the OC division of Standard Pacific. The highest densities in OC’s masterplanned communities now are 20 units to an acre, and Stowell hasn’t found the right mix to bring the 50 units per acre to a development in the county. "Right now, we have a project in Playa Vista targeted for 50 units to an acre," Stowell said. Nineteen of the 30 builders on the list posted lower home sales, while nine posted gains. Two builders, No. 19 Centerstone Homes in Santa Ana and No. 24 Van Daele Development of Riverside, did not have sales in 2000.

The biggest gainers included No. 3 Brookfield Homes, up from the No. 8 spot. The Costa Mesa office of Toronto’s Brookfield Properties Corp. grew 76%, with 557 units sold. Sales at No. 5 Centex Homes, the Irvine office of Dallas-based Centex Corp., were 40% higher, with 465 sales. The Irvine office of Red Bank, N.J.-based K. Hovnanian Cos. also saw sizable increases. The company jumped from No. 23 to No. 11, with a 187% increase in homes sold 250 units. The Orange office of Huntingdon Valley, Pa.-based Toll Brothers Inc. also had a flush year, jumping from No. 22 to No. 12. The company’s sales climbed 72% with 175 units sold. Other gainers include the Orange office of Beazer Homes, part of Atlanta-based Beazer Homes USA Inc., up 18% with 139 sales, and Tustin-based HQT Homes, up 178% with 128 units sold.

Debuting on the list are Centerstone Homes with 83 sales, Van Daele with 69 units sold, No. 27 Etco Development of Westminster, No. 29 Compass Homes in Costa Mesa and No. 30 Brandywine Development Corp. in Santa Ana. Falling off or not qualifying for the list this year are Hearthside Homes Inc., MBK Homes Ltd., Paragon Homes and Pulte Home Corp.

Local employment at the homebuilders held steady at 2,674 against 2,666 last year.

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