Stockton developers are suffering as badly as Sacramento-area builders. Stockton also enjoyed a meteoric rise in land value and development projects during the housing boom, and has suffered just as badly from the bust. Construction has nearly come to a halt and a steady stream of foreclosures prevents a job-creating resumption of building.
During the boom, developers would gobble up land and develop it as quickly as possible. To do so, they overleveraged themselves with cheap credit. When credit dried up and housing prices fell off a cliff, many developers held unbearable levels of debt. With their projects' values suddenly a fraction of what they had initially projected, they had no prospects of repaying the debt and filed for bankruptcy. Nationally, one in five developers filed bankruptcy or closed, and that rate was surely higher in the Stockton and Sacramento areas.
Developers that survived have built at a much slower pace. According to the Stockton Record, KB Home does not build until a home is sold, and the homes that it does build have been smaller. And with one in 85 existing Stockton homes going into foreclosure in November, there is a lackluster market for new homes because of so many cheap recently-built homes coming onto the market.
For development to rekindle and supply more construction jobs, the tide of foreclosures will have to be stemmed. Hopefully, the federal government's Home Affordable Modification Program begins working more effectively. Each home that avoids foreclosure reduces the housing supply and props up everyone's home values.
