by Calculated Risk on 1/04/2006 06:56:00 PM

The Contra Costa Times reports: Home builders see flat housing starts

California's 12-year run of home building gains will likely end in 2006, as developers pause to clear out excess inventory during the early part of the year, according to a trade group's annual housing forecast.

The Sacramento-based California Building Industry Association report released Wednesday also predicted the state's torrid pace of housing price advances will slow, to between 5 percent and 8 percent per square foot. That's well off the 25 percent to 30 percent increases of the past few years.

The first quarter in particular could promise some price relief, as home builders pony up concessions to slice their growing inventory levels, said Alan Nevin, CBIA chief economist.
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Statewide, the CBIA projects 185,000 to 205,000 new housing permits in 2006, down from an estimated 212,000 last year. Most of the decline will likely be in the high-end segment in coastal areas. Transactions in the resale market will likely fall to between 550,000 and 600,000, down from a recent high of 650,000.

Given the decline in housing construction, the CBIA also expects to see a "modest pull-back" in construction employment, which accounted for 13 percent of the more than 400,000 new California jobs created in 2005.

Dr. Thornberg is not so optimistic:

Christopher Thornberg, senior economist with the UCLA Forecast, expects housing construction to drop by 25 percent next year, resulting in significant job loss for the construction industry.

He said the CBIA's pricing prediction could prove true, but he hopes it doesn't because he believes prices are already "out of whack with reality."

"The real question is, is it a good thing if they go up and the answer is clearly 'no,'" he said. "It will just make things that much worse and it will take that much longer to correct."