Slow but steady
Chico’s strong housing market is experiencing only a mild downturn. Will a recession come and change all that?
To John Mitchell and other speakers at the Tri-Counties Economic Forecast Conference, held Jan. 17 at Chico State University, the housing market in California is going to hell in a handbasket, the victim of thousands of foreclosures, crazy loans and too many homes on the market.
What they didn’t say, however, is that Chico is an oasis in this sea of doom and gloom. Yes, housing values have gone down here, but not greatly. Fewer houses were sold in 2007 than in 2005, but not by many. Fewer building permits were pulled in 2007 than in 2006, but not a whole lot fewer. And the number of houses currently on the market, around 300, is about right for sellers and buyers alike.
As Debbie Brodie, president of the Chico Association of Realtors, put it during a phone interview, “Chico is not Sacramento. We’re not Glenn County. We’re not even Oroville.”
No offense to Oroville, but it’s been somewhat overbuilt lately, Brodie said, and has a larger percentage of unsold homes than Chico does. Brodie’s point was that, when it comes to housing, California has multiple microclimates, and what’s happening in one may not be happening in another.
As Mitchell, an economic consultant with an extensive background in banking, pointed out, the glut of foreclosures has taken place mostly in three rapidly growing areas: Sacramento and the larger cities of the Central Valley; the Inland Empire (Riverside and San Bernardino); and sections of Los Angeles.
The availability of all kinds of tricky loans—Mitchell referred to some of them as “ninjas: no interest, no job, no assets"—allowed people to obtain loans they couldn’t afford and, in a declining market, couldn’t refinance.
The upside of this surge of loosey-goosey loans, Mitchell said, was that millions of Americans who heretofore couldn’t buy a home were able to do so. The downside was that many borrowers—about 10 percent—hit bumps when their ARMs reset and they couldn’t make their payments.
As a result, a glut of foreclosures has left whole neighborhoods filled with boarded-up homes, greatly increased the amount of available housing stock, and further depressed a housing market already in decline.
But you won’t see any of those boarded-up houses in Chico, nor will you see streetscapes filled with for-sale signs. For a variety of reasons, including—ironically—its often contentious politics on the issue of growth, Chico has largely escaped the housing downturn.
Take a look at the figures. According to data provided by the Chico Association of Realtors, 996 homes were sold in Chico in 2005, 904 in 2006, and 873 in 2007. That’s a decline of just 12 percent in two years. Statewide, the figure is 50 percent.
In addition, the median sale price actually went up slightly between 2005 and 2006, from $335,000 to $336,000. It came down in 2007, to $325,000, a drop of just 3 percent. The decrease statewide: 11.9 percent in just 12 months.
The biggest change in Chico is in how long it took the average house to sell. In 2005, it stayed on the market 52 days; in 2006, 63 days; and in 2007, 81 days.
“We’ve kept an incredibly strong market,” Brodie said. “If a house is priced right, it will sell.”
And the construction industry has stayed relatively strong, as well. According to city of Chico figures, residential construction levels have declined somewhat in the past two years, from 605 units worth $83 million in 2005 to 468 units worth $59 million in 2007. At the same time, commercial and other non-residential construction has increased, from $27 million in 2005 to $41 million last year.
Jason Bougie, director of the local chapter of the Building Industry Association, said that one of the strengths of Chico’s building industry is that it’s “99 percent owned locally,” which means it has greater flexibility when it comes to responding to changes in the housing market. Builders are waiting for conditions to improve, he said, and are pulling fewer permits as a result.
Some contractors are focusing on commercial work while waiting for housing construction to pick up, said Kate Leyden, director of the Valley Builders Exchange. In addition, local roofers, builders and fence makers are getting plenty of calls lately for storm damage repair.
Bougie noted that a number of major projects are still at their beginning stages, citing Meriam Park, various developments in the Northwest Chico Specific Plan area off Eaton Road and The Esplanade, and Tony Symmes’ Wildwood Estates subdivision off Cactus Avenue.
Meriam Park has the advantage of being a mixed-use development, giving it greater flexibility. Tom DiGiovanni, president of New Urban Builders, has said that the company is holding off on building houses there until 2009 because of the slower market but moving ahead this year on putting up some of its commercial structures.
“I’d say on a local level we’re doing way better than other regions,” Bougie added.
One of Bougie’s concerns is a looming lack of available land. He said as much to members of the Chico City Council at their Jan. 15 meeting.
Although a city study has determined that sufficient land has been approved to handle nine years’ worth of development, Bougie told the council that didn’t mean it would be developed in that time. “You’re talking about pieces of land that have been on the market a long time,” he said. “We’ve picked all the low-hanging fruit.”
The Greenline and other constraints, along with an active environmentalist community, have limited the amount of land available for development in Chico. One perhaps unforeseen consequence is that it’s prevented developers from overbuilding.
“When houses stopped appreciating [in 2005], Chico wasn’t left with a lot of unsold houses,” the CAR’s Brodie said. “Builders didn’t have to discount their new homes to sell them.”
Bougie agreed, and added that another advantage of a shortage of land is that it keeps corporate mega-developers out of Chico. “They need to put up at least 300 houses for it to pencil out, and there’s just not that kind of room here,” he said.
But balance is needed, he said. If there’s too little land for building, demand rises, and if too few houses are available, prices start to soar out of buyers’ reach.
One significant consequence of flattened housing values has to do with what Chico State economics professor David Gallo, another speaker at the forecast conference, called the “wealth effect.” When values are appreciating, he explained, homeowners invest in their homes, using equity loans to pay for improvements. When values are flat, they stop doing that—with unpleasant ripple effects in the retail sector.
How the state and national economies will affect Butte County remains unclear, Gallo and the other speakers said. They agreed that economic indicators aren’t as grave as the media are suggesting, and that in many sectors—travel and leisure, technology, aerospace, exports—the national economy is doing well.
Certainly there will be some impact from a national recession, but Brodie is convinced the housing market will remain solid. “This is a great town. People want to live here,” she said.
“Will there be a recession?” Mitchell asked. “Like beer bellies and bald spots,” he said, “a recession’s beginnings are hard to compute until the evidence is too obvious to deny.”