Advertisement
YOU ARE HERE: LAT HomeCollections

1992 Worst Year for Builders in Decade : New Housing: Last year's stagnant economy hurt home builders overall but some benefited from easier access to capital, while others found niche building for first-time buyers.

March 07, 1993|STEPHANIE O'NEILL | SPECIAL TO THE TIMES; O'Neill is a Los Angeles freelance writer

Sagging consumer confidence and a debilitating credit crunch continued to hammer the Southland's new housing market in 1992, making it the worst year for most builders since the 1982 recession and causing many of them to temper their enthusiasm for 1993. But while the stagnant economy hurt profits for many of the 100 developers included in the 22nd annual Times survey of residential builders, some larger builders with easier access to capital said 1992 was a boom year and they expect 1993 to be even better. "We had an 80% increase in sales," said Curt Ensign, division manager of UDC Homes in Corona, ranked No. 32 in the survey. "We have good access to capital and can plop down cash and get a good price on property." The Times mailed nearly 300 surveys to builders in Kern, Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties. The William Lyon Co. of Newport Beach ranked No. 1 for the sixth straight year, with a sales volume of $314.7 million in 1992. But that figure represented a nearly 53% drop in earnings from 1991 and was 30% below their sales projections for 1992. * The company is projecting its 1993 sales will be about 31% lower than 1992's, with 1,033 houses and condominiums planned for this year, compared to 1,437 completed last year. No. 2 Kaufman & Broad Home Corp., ranked No. 6 last year, recorded $279.2 million in 1992. The firm is projecting that 1993 sales will skyrocket almost 74%, to $484.6 million. The Los Angeles-based company plans to build 3,100 houses and condominiums this year, compared to 1,808 last year. Lewis Homes of California, headquartered in Upland, remained in third place for the second year, with $231 million in sales. The company built 1,093 homes in 1992 and is expecting to build 1,300 in 1993, boosting projected sales nearly 13% this year to $260 million. No. 4-ranked Bramalea California Inc., based in Newport Beach, which recently bought Malborough Development Corp., moved up from 15th place with $179.1 million in 1992 sales. But the firm plans to build fewer homes in 1993 with anticipated profits dropping slightly to $178.8 million. The Presley Cos., also of Newport Beach, jumped to No. 5 from 12th place in 1991, with 913 units and sales of $178.3 million. This year the company expects to build 1,129 units with projected sales of $207 million. The number of responding builders this year was lower than those of past Times surveys and may be indicative of 1992's devastating business climate, said Ben Bartolotto, research director for the statewide Construction Industry Research Board (CIRB). "Whenever you have a downtrend like this one, you have turnover in firms, especially development firms," he said. "In '81 and '82 the same kind of thing happened--offices closed or went out of business. . . ." Among those not responding to this year's survey were several active builders ranked high on the 1991 list, including the Fieldstone Group (No. 2 in '91), the Lusk Co. (No. 16) and INCO Homes (No. 28). An INCO official said the company could not release any information because it is preparing to go public. In this year's survey, few builders said they believed things can get much worse, and most predicted the real estate industry will revive somewhat in 1993. "If there are early signs that Clinton's leadership can affect the long-term problems, consumer confidence will return and we'll see housing pick up again," Julie Newcomb, president of No. 41-ranked Costain Homes Inc. in Newport Beach, predicted in written comments on the survey. The companies surveyed are expecting to build 29,266 units in 1993, which is nearly 14% more single-family homes, condominiums and apartments than the 25,686 built in 1992. And the 95 firms that gave sales projections for 1993 are predicting almost a 22% increase in sales above last year, to $5.2 billion in 1993. However, the home builders greatly overestimated the potential growth in 1992. In that year's survey, the 119 responding builders projected a sales increase of about 21% above the 1991. But sales for the 77 firms that participated in both the 1992 survey and this year's study dropped nearly 16%. Bartolotto, who was among those predicting 1992 would be better than 1991, said he was taken by surprise by the decline. "When I look at the numbers, the job losses and compare it to other recessions, it just doesn't jive with historical patterns," he said. "The only thing that would be different, possibly, would be the credit crunch." Financing for housing construction was the "impossible dream," commented B. Lynne McCune, president of Signal Hill-based Kylcor Development Corp., No. 86 on the list. He described 1992 as a "definite nightmare. . . . Builders and subcontractors have been dropping like flies," he wrote. But McCune, like many of his fellow builders, are optimistic 1993 will bring some improvement. Almost 79% of the respondents predicted an increase in building and sales above 1992 levels. Consultant Jeffrey S. Meyers, president of the Meyers Group market research firm, said he expects a modest improvement of "7% to 8%" at best. "So far this year we're seeing some strength in the market, from improved confidence levels since the election to a small loss or net zero job growth, which while it doesn't sound good, is much better than the substanial (job) losses we've had." Bartolotto agrees: "I'm saying we've bottomed. I can't imagine multifamily (construction) going any lower. And while single-family (construction) could go lower, conceivably, I see it going up about 5%." According to CIRB, the number of multifamily homes built in the eight-county survey region in 1992 was 34% below the number built in 1991, about equal to the statewide drop. The number of single-family homes built in the Southland in 1992 was down 2% from 1991, while the state as a whole experienced a 3% growth above 1991. Nearly 66% of those surveyed said they hope to pull out of the now 3-year-old real estate slump by building more entry-level homes. About 57% said they plan to build smaller units, while about 55% said they'll be lowering home prices in 1993. Kaufman & Broad, which ranked No. 2 in the survey for total number of units sold and No. 1 for single-family homes, credited much of its success on focusing on the first-time buyer. "We've gone back to building entry-level (homes) because we realized that's where business was, for the most part," said Roger Menard, executive vice president of K&B's California operations. Menard said he expects 1993 will prove to be more even lucrative for the firm than 1992. He reported "record levels" of foot traffic and sales in K&B developments statewide. While builders hope that the lowest interest rates in two decades and soft housing prices will spur sales, strong, effective marketing will continue to be important, several commented. Ensign, of UDC Homes, said developers must open fresh models more frequently if they hope to sell out their inventory. "Before, one model complex used to be fine to sell 200 lots," he said. "Now you have to be prepared to open a new complex for every 75 to 100 lots." And while added sales activity is worth the extra cost of new models, Ensign said, a builder must have the cash to open the expensive new complexes, as the banks won't finance them. The survey asked developers where they planned to build in 1993. Nearly 44% targeted Riverside County, followed by San Bernardino County, 34%; southern Orange County, 29%; northern Los Angeles County, 28%; northern Orange County, 24%; Los Angeles County, 23%; northern San Diego County, 22%; southern San Diego Conty, 14%, and Ventura County, 13%. About 55% of the new homes will range in price between $100,000 to $199,000. Another 33% will be homes in the $200,000 to $349,000 range. Some builders believe last year's poor sales have created a pent-up consumer demand that with the right economic and political climates may leave the bad years behind.

Advertisement
Los Angeles Times Articles
|
|
|