Is Construction Slowing Down?

California seems to be a good catalyst to use in comparing national real estate markets.  Having led the home building boom for the last 5 to 10 years, we can now see the contrasting effects of slowing sales, higher land prices, higher construction cost, and the overall negative hype about the market.  Many builders however are marching forward seemingly unaffected by the conditions of the market. 

San Francisco condos and San Diego condos continue to be built though there is an obvious decrease in the pace of construction compared the recent years.  Nationally, building permits fell by 25.9 percent in March as compared to March 2006, according to the U.S. Census Bureau.

Many home builders placing production on hold or cancel plans for new condos and home communities until they can get their financial “legs” underneath them.  We have seen some of the nation’s leading home builders take a big hit in sales recently, but recovery is in site and absorption will pick back up as it always does.  The question for now is how to weather the storm and negotiate the obstacles ahead.  Some home builders in areas of California for example are doing just fine due to product affordability and the types of buyers they are receiving.  KB Homes, for example, whose presence in Southern California is huge, continues to build and sell homes at a healthy pace.  Many of their homes start in the low $200,000’s and the buyers are end users looking to stay for a long time! 

In other areas of Southern California where building has been booming, we still see many permits issued and construction plans moving forward.  Downtown San Diego is one of these areas that seems not to be intimidated by slower absorption rates.  The demand will come again and absorption will become healthy. 

Many builders who have been focusing on the condo conversion industry will continue to have additional struggles other than slowing sales.  Cities are creating stricter guidelines for builders wishing to convert apartments to condos.  These restrictions and increasing the cost and time it takes to complete a project as well as diminishing the availability of apartment communities to concert. 

All of these issues are hitting the construction industry hard.  There are now fewer construction jobs available in the home building industry.  Many contracting companies may have to take a serious look at the possibilities of non-residential construction as the commercial markets continue to do well.