Home builders battle to survive

Many small builders are struggling to stay in business, and larger, publicly traded development companies are reeling under huge losses as lenders tighten credit and housing sales stall.

On Wednesday, Ryland Group Inc. of Calabasas reported a second-quarter loss of $241.6 million, seven times higher than the average estimate of a Bloomberg survey.

The Ryland loss followed a report earlier this week that June housing starts were down 44% in California from a year earlier. "It's very bad, the worst I've seen," said Mick Pattinson, a 32-year industry veteran and chief executive of Barratt American, a private builder based in Carlsbad. "It's impossible to build anything today at a profit, so builders are either taking losses or have pretty much stopped building," he said.

Pattinson said his company, which builds in San Diego County and the Inland Empire, is down to 40 employees, from a high of 140.

"We're trying to stay alive," said Pattinson, whose company is scraping by with reconstruction work in fire-damaged parts of San Diego and a few custom home orders.

In addition to the 44% decline in housing starts last month, the California Building Industry Assn. said its latest figures on new-home sales showed a 51% drop-off in May from a year earlier.

Hopes for a recovery "have fallen apart" and that is "going to make the rest of 2008 a rocky ride for home builders," said Jonathan Dienhart, research director of Hanley Wood Market Intelligence, which prepared the builders group's report.

The Los Angeles area, which includes Orange County, has fared even worse than the state as a whole, the report said.

New-home sales in May were down 79% from a year earlier, and median sale prices for the month were off 23% from a year earlier, to $409,990. California new-home prices in May were down 14% from a year earlier, to $379,000.

Pattinson said financing was a major problem. Banks are making it difficult for builders to work out faltering loans, he said.

Pattinson said a group of about 30 builders had been meeting every two weeks in San Diego to discuss problems, such as banks cutting off financing for projects that are already underway.

Many builders will go under, Pattinson said, because "banks aren't supporting businesses that supported them for decades."