SONOMA COUNTY — Residential construction in the North Bay’s most populous county is projected to improve this year as prices finally hit bottom heading into 2013, but the pace of homebuilding going forward will be slower than before the economic recession and profits will be pinched harder, according to a new county government report.
For commercial construction, the outlook for work on retail space, for which vacancies have been falling for two years, is more promising than for building more office and industrial space, but wineries likely will be looking for more storage space as their bottled inventory dwindles, according to a new report from Moody’s Analytics for the Sonoma County Workforce Investment Board and Sonoma County Economic Development Board.
“Construction will contribute a smaller share of economic growth in Sonoma County than before the recession,” the report said.
The inventory of unsold homes in Sonoma County, while still near the high before the recession, fell below six months’ supply, according to California Association of Realtors figures cited in the report. So the county would run out of homes to sell in less than half a year at current rates of buying, unless more properties come on the market.
The number of homes in various stages of foreclosure in the county more than doubled — about 10 filings per 1,000 households to roughly 25 per 1,000 — from mid-2008 through the peak in mid-2009, according to RealtyTrac data analyzed in the report. The rate of foreclosure is expected to rise slightly sometime this year as federal and state officials reach a deal with mortgage lenders on dealing with a number of “distressed” home loans, according to Moody’s.
“The agreement will free lenders to work through remaining foreclosures, causing a limited decrease in house prices but finally setting a floor on price declines,” the report said.
The rate of Sonoma County foreclosure filings and of lender-owned properties available is projected to fall sharply from the middle of this year through 2013, to the lowest levels since early 2008. While those lender-owned homes remain on the market, home prices will continue to be depressed, cutting into already-thin profits of builders of new homes. Those profits are expected to be crushed further as prices rise for lumber, cement and gypsum rise because of demand from booming home construction areas.
Yet a growing population, albeit slowed dramatically at the height of home prices, plus generally improved household credit bode well for demand for retail space and home-buying long term. However, home values are expected to be more moderate going forward. Before the housing bubble burst, home prices locally were growing at double-digit rates annually.
Nonresidential construction has been more active than residential in the North Bay, according to the report. High vacancy rates for office and industrial space in Sonoma County, continued falling rents as owners compete for tenants plus rising materials costs and still-high costs for project entitlements preclude new construction.
Yet as has been witnessed primarily in Petaluma over the past three years, when properties sell at low prices allowing the new owners to ask for much lower rents can convince companies to expand or relocate, generating a number of tenant-improvement jobs.
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