Bank and Federal Home Loan Foreclosures Drag Homebuilding Down

by on Foreclosures

The huge supplies of bank foreclosed properties and federal home loan foreclosures are being blamed for the continuous downturn in the homebuilding sector of Sacramento, California. The new home market experienced another massive decline in January of this year, but some analysts are also citing other factors that have nothing to do with foreclosures.

Although the huge number of Sacramento foreclosures for sale is partly to blame for the decline in homebuilding activities in the area, analysts also noted the impact of code changes on the house construction market. The California Building Industry Association reported that for January 2011, only 115 permits were issued for all types of housing construction projects. This represents a fall of 67% compared with January 2010 when 351 permits were issued. The permits covered both single and multi family residential construction activities.

Aside from foreclosures in California however, analysts stated that there is also the issue of code changes, with builders rushing to secure permits last December before changes in building codes are implemented at the start of 2011. In terms of statewide figures, homebuilding permits also recorded a decline although not as massive as the Sacramento figure, with California permits only declining by 5% in January compared with one year ago.

According to state homebuilders, the high number of low-priced distressed properties, like bank and federal home loan foreclosures, is making it hard for new houses to gain traction as most investors and homebuyers are opting for cheaper properties. The fact that unemployment levels are at an almost record high is also not helping the cause of house builders in Sacramento.

However, things are not as bad as it seems despite the massive decline in homebuilding permits in January. According to builders, part of the decline may be attributed to bank home foreclosures, but part of it can also be explained by builders trying to avoid the newly implemented regulations that require fire sprinklers in all newly built houses. According to them, this latest requirement can increase the cost of building a new home by as much as $8,000, something that some new homeowners may not want to pay for.

As of now, builders are unable to provide a projection of how much this new requirement will impact the new home market. However, they do expect the number of bank foreclosures and federal home loan foreclosures to rise again this year and to continue to affect the prices of residential properties in the area.