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Real estate experts look for market to start healing

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Posted: Wednesday, January 19, 2011 12:00 am | Updated: 5:53 am, Thu Jan 20, 2011.

While building companies and Realtors are hopeful that 2011 will see the economy recover and property values increase, they are expecting the Great Recession’s hangover to linger a little longer. Even though building permits for single-family detached homes in Lodi are starting be issued for the first time in more than a year, experts aren’t expecting the area’s construction industry to boom. However, any growth is cause for optimism for Realtors and developers.

“On the construction side, we’re seeing daylight for the first time in two years,” said John Anderson, a financial executive for Stockton-based Diede Construction. “It’s starting to happen because the city and county governments are asking what they can do to attract development.”

One of several scenarios must unfold in order for the housing and construction industries to fully recover, said John Beckman, chief executive officer of the Building Industry Association of the Delta.

To Beckman, the demand for new houses will be spurred if the county’s unemployment rate significantly drops or the cost of development fees are lowered. Between payments to the city, county and other agencies, it can cost up to $50,000 in fees to build a new home, he said.

The city of Lodi has no plans to adjust its impact fees, said city spokesperson Jeff Hood.

“By reducing impact fees, you are essentially asking the community to subsidize the impacts,” Hood said.

The impact fees developers pay relate to the construction of new roads, parks and fire houses, and to upgrades to the city’s wastewater service system. Reducing impact fees would lead to the community having to find other ways to raise money to pay for a fire department near a new housing development, Hood said.

“You don’t want to grow to the point that you can’t serve the public,” he said.

The other factor slowing the demand for new construction are homes foreclosed by banks that are not on the market yet. Known as the “shadow market,” it refers to homes still held by lenders that are not yet available to buyers.

“All of that shadow inventory would have to go away in order for demand to come back,” Beckman said.

By the numbers: Since July, the city of Lodi has issued only five building permits for the construction of single-family detached homes. In the fiscal year 2009-2010, neither Lodi nor Galt issued any building permits for single-family detached homes.

Part of the reason more new homes aren’t being built is because the development fees in Lodi are cost-prohibitive, said Beckman.

“Between fees for the city, school districts, the county and the air district, the fees can add up to $50,000 on top of the construction costs,” he said.

New legislation is also hamstringing builders’ efforts to construct more houses, he said.

There is a requirement that sprinkler systems be installed in new houses, and that adds about $5,000 worth of costs, Beckman said.

Looking forward: Fortunately for Lodi, many of its available homes are very affordable, said Kerry Suess, president of the Lodi Association of Realtors. The majority of homebuyers in Lodi, according to Suess, are first-time buyers and investors.

“Lodi has good opportunities for people who want to move up,” he said.

Investors are attracted to Lodi because they can purchase and rent out homes for more money than their monthly mortgage payment.

“You can buy a $200,000 property, put 20 percent down and pay $1,000 a month as an investor while renting it out for $1,300 a month,” he said.

Although interest rates are no longer at historic lows, they are still at rates considerably lower than in the early 2000s, Suess said.

However, unless you are looking to move up to a larger home, this is not a seller’s market due to the large amount of inventory available, Suess said.

Short-sale homes should continue to linger on the market for several years and home values won’t increase dramatically during that time, he said.

Southern Lodi is an area that could potentially be appealing to homebuyers in coming years, Suess said.

“Home prices there were in the $400,000 and now they are around $180,000,” he said.

Job outlook: Although the construction industry isn’t likely to reach the stratospheric levels of production it achieved in the early 2000s, one local company has several projects rolling out in 2011.

Diede Construction is finishing up four homes being partially funded by Community Development Block Grant funds. Located on Oak Street near Cherokee Lane, the homes are in their final stages of construction and should be completed in the next few weeks.

Public works projects will be the bulk of Diede’s efforts in 2011. Although public works projects are nothing new to Diede Construction, the company’s financial executive, John Anderson, said that many contractors who experienced slowdowns in the residential market are moving over to the commercial side.

However, the contractors may not have the resources necessary to adequately compete with larger companies, he said.

The construction companies that will succeed in the coming years, he said, are ones that are vertically integrated and have their own finance and marketing departments and metal fabrication abilities.

“A lot of contractors can’t afford to work in the public sector arena,” he said. “Not many people know that public works never slows down.”

Although he was tight-lipped about specific projects, Anderson said Diede is expected to be a part of roughly six multimillion-dollar projects in and out of this year.

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5 comments:

  • Doug Chaney posted at 8:09 pm on Wed, Jan 19, 2011.

    Doug Chaney Posts: 1232

    Mr. Scott, I don't think there are many $400K homes left in Lodi? Homes here seem to be foreclosing faster than they're being sold, so the inventory should surely be rising. How many of these homes are real estate owned by local realtors? And how about the local banks like F&M? Do these local entities have fear of releasing these foreclosures and embarrass themselves by revealing the large number of properties they've hoarded hoping to make thay fast buck in the real estate boom or buy them for flippers to make a quick sale and nifty profit? It's pretty well known who the greedy local realtors and investors are, many who are upside down on their own homes and loans and are on the verge of ruin themselves.

     
  • Jackson Scott posted at 5:20 pm on Wed, Jan 19, 2011.

    Jackson Scott Posts: 382

    Doug, the school & residential housing portions of RR were dropped due to the plunging economy. First, enrollment at nearby Lois Borchardt Elementary was already dropping due to foreclosures in the neighborhood, along with families moving out of the newer houses for rent to less expensive rentals in other parts of the city. Second, as you've already mentioned, Lodi has a huge inventory of homes for sale on the market, and plenty of people waiting for the market to rebound before they put their house up for sale. A new development in RR would only add to the inventory and would tank. Just look at the subdivision on the SW corner of Lower Sac & 8-Mile. Maybe 20% of those lots have homes built on them.

    I have a problem with the numbers given: a $400K house is now only worth $180K? Where is that, south of Kettleman? I read in the newspaper the streets of the foreclosures and Jayhawk is must have a ton. I cruised that area recently and it sure has went down hill.

     
  • Doug Chaney posted at 9:28 am on Wed, Jan 19, 2011.

    Doug Chaney Posts: 1232

    And as far as lowering impact fees, won't that create competition from the outside? That's what the local developers fear. Remember the recent Social Security building move fiasco? Local Lodi developer interests were the same ones who filed certain complaints about this southern CA developer who "jumped" into their territory, weren't they? Our local developers have nice unwritten deals with officials who use dirrty tactics to reduce the burden of the fees they actually are said to pay. These local developers don't want any competition at all because they don't have the means to advance their LLC's anywhere else outside of the Lodi area in this new financially dominated world of today. Outside competition from an honest outside developer would bring ugly questions concerning some of the deals rendered by council to the local developers they pander to. Reynolds Ranch was one of those projects that changed drastically from the presentation at council and the time it was brought to council for approval. Even council reps Mounce and Hitchcock questioned who, what and why these major changes were made, then Manager King, the great spinner he is, talked around everything but the answers, while the project was brought to council for vote without a valid explanation, reps Hansen, Johnson and Beckman approved it, again with the original 3 amigos voting yes. The school suddenly disappeare from the original project, the commercial sf was drastically increased and the densities of residential was changed to reflect more higher density housing and lowering the lower density to allow for extra substantial profits. As far as I research, I can find no evidence of any additional council or public notification of these changes in the time frame between the council presentation and the subsequent major changes to this project profiting the developer immensely. An outside disgruntled developer could upset the apple cart quickly. Just my opinion on the good old boys system.

     
  • Doug Chaney posted at 8:57 am on Wed, Jan 19, 2011.

    Doug Chaney Posts: 1232

    Mr. Hood, there are currently three large projects approved by council, Reynolds Ranch and the two SW projects off of Lower Sac road. Reynolds Ranch continues to build the Super High
    way 99 Lodi strip mall, yet no talk of any housing there. When the local banks and lenders, real estate brokers, agents and their families and local investors release their hoarded and huge inventory and move it, there won't be any significant rise in home construction. The indexes last month indicated home prices dropped another .05% won't help the matter, either. And as long as Lodi has retired part-time real estate appraisers with thei suspected highball appraisals, such as councilman Johnson, I doubt that will help spur home construction either, as well as existing home sales. And, IMO, home prices in Lodi are still overvalued in the Lodi area, with only agriculture, mainly the winegrape industry sustaining the local economy and very few living wage jobs available here.

     
  • Darrell Baumbach posted at 3:58 am on Wed, Jan 19, 2011.

    Darrell Baumbach Posts: 9403

    The city of Lodi has no plans to adjust its impact fees, said city spokesperson Jeff Hood.“By reducing impact fees, you are essentially asking the community to subsidize the impacts,” Hood said.

    Can cost up to $50,000 in fees to build one house... no one is building, the economy is suffering, people are out of work…but we cannot reduce fees to attract permanent residents who would pay taxes, buy products and services locally... support workers that put the food on the table... if ever there was short sighted, backwards thinking, asinine statement, Jeff Hood made it here, and should be in the hall of fame , in my opinion.

     

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