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Homebuilders Post Big Sales Decline as Open Land Dwindles

It was the year the housing market turned.

Orange County’s top 30 homebuilders sold 4,706 houses and condominiums last year, down 25% from 2003, according to this week’s Business Journal list.

Builders are ranked by new-home sales data provided by the Costa Mesa office of Washington, D.C.-based Hanley-Wood LLC. Hanley last year bought The Meyers Group, which puts together the local data.

A dearth of large projects for sale was the key issue for homebuilders’ declining sales. Soaring prices also gave some potential buyers pause.

In summer, housing sales plummeted and prices stopped their dramatic month-to-month gains.

Sales figures can swing widely from year-to-year depending on when master-planned communities are open for sale. OC’s large South County developments, Ladera Ranch and Talega, are nearing build out.

Last year saw a couple of large projects from The Irvine Company. It sold land to builders at Irvine’s Quail Hill and opened Woodbury, a part of its massive Northern Sphere, late last year.

2004 also is being compared against a recent peak year, said Michelle Wolkoys, managing director with Hanley-Wood.

Wolkoys said OC’s limited supply of developable land means the county’s not likely to see results posted in 1997 when 10,000 homes were sold, or the late 1980s when 15,000 units a year were the norm.

2004’s drop in sales was concentrated in houses. OC’s top builders sold 2,886 houses last year, a 33% decline from 2003.

Condo sales were down 7% to 1,820.

Builders have embraced condos in recent years after shunning them during the 1990s because of construction defect litigation. With condos, builders can pack more units onto an acre of land. That’s key because land is expensive and scarce these days.

Condos, generally cheaper than houses, are popular among buyers during market peaks. They often are the only type of home younger buyers can afford.

Construction defect litigation still is a big concern for builders. But they are able to pass on the high cost of insurance to homebuyers. Builders have gotten savvier on construction methods and on heading off lawsuits by responding quickly to complaints.

Market declines led to some dramatic, and sometimes peculiar, shuffling among the county’s top builders.

A sign of the times: No. 1 Standard Pacific Corp. in Irvine led the pack despite a 22% decline in sales to 590 houses and condos in 2004 versus a year ago. The company moved up from No. 2 last year.

The top homebuilder held its market share of 11.5%. It sold 35% less condos and 14% less houses last year than in 2003.

No. 2 D.R. Horton Inc., based in Fort Worth, had a 43% drop in sales to 342 houses and condos,it sold less of both.

No. 3 Newport Beach-based William Lyon Homes Inc. posted a 16% sales decline to 340 homes. William Lyon sold 161 condos last year, a 9% gain. Its sales of traditional houses dropped 30% to 179.

No. 4 John Laing Homes, part of Newport Beach’s WL Homes LLC, surged six spots on the list based on condo sales. John Laing sold 232 condos last year, up 152% from 2003. It sold 36% less houses, for a total of 108.

John Laing was the first builder to put homes on the former Tustin Marine base. Its townhomes sold quickly there.

The most dramatic drop on the list came from No. 9 Shea Homes LP, a unit of Walnut-based J.F. Shea Co., which was No. 1 a year ago.

Shea, the county’s largest private homebuilder, typically competes with Standard for the No. 1 spot, some years settling for No. 2.

Focus on Condos

In a twist, Shea’s drop is a reflection of its focus on condos in OC, according to Wolkoys of Hanley-Wood. Shea sold some sizeable condo projects in 2003, which went quickly, leaving it with fewer projects for sale last year, she said.

“They could build (condos) quicker and sell them quicker,” Wolkoys said.

Shea, which has a good relationship with the county’s biggest landowners, sold condos on the Irvine Ranch and at Ladera Ranch, Wolkoys said.

No one epitomizes the condo craze more than No. 11 Bosa Development Corp., which shot up 11 slots on the list. Bosa is well under way on construction of the county’s first luxury condo towers.

Canada’s Bosa is building twin 18-story towers at the sprawling Park Place commercial campus in Irvine.

The developer sold 149 condos there last year, up from 83 in 2003. Bosa plans 232 condos. Founder Natale “Nat” Bosa said he plans to build four more towers at Park Place.

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