The Press Enterprise reports from California. "After hitting bottom in 2007, home building in California and the Inland Empire will rebound modestly this year with smaller and less expensive homes affordable to first-time buyers, according to a forecast released Thursday by the housing industry. Alan Nevin, chief economist for the California Building Industry Association, predicted the mountain of foreclosures will shrink this year in Riverside and San Bernardino counties."

"California has 'weathered the subprime market storm of 2007' and the correction is almost over, he predicted."

"Sharply lower lot values combined with a trend toward building smaller homes by the third quarter will deliver new houses priced below $300,000, Nevin said. 'Builders will be able to offer better values and people will recognize that and they will come out and buy. It will just be a whole new era,' Nevin said."

" Nevin's forecast was challenged by Chapman University economist Esmael Adibi and economist Chris Thornberg, both of whom say the housing bubble is still deflating."

"'This is a feel good forecast, but unfortunately it is not going to happen. There is absolutely no rebound in 2008,' Thornberg said."

The North County Times. "The building association's forecast estimates that permits issued for new home and condominium construction statewide will increase 10.5 percent to 128,400 in 2008."

"The building association's sunny outlook has not held up in past years."

"Over the last two years, Nevin's forecasts have overestimated the number of actual building permits by about 40,000. For example, Nevin predicted between 155,000 and 170,000 permits in 2007. The building association estimates permits for 2007 to hit about 116,250."

"'There is an amazing amount of money sitting out there waiting to buy lots that drop in value,' said Nevin, who is also the director of economic research for San Diego-based MarketPointe Realty Advisors."

"The economists expect falling land prices in Riverside County to encourage builders to construct smaller homes that will sell for as little as $100,000. Those homes will likely be built east of Temecula and Murrieta, Nevin said."

"It may not need to wait much longer, according to The Hoffman Co. In the French Valley area east of Murrieta, where development boomed in 2004 and 2005, the average price of finished 7,200-square-foot lots fell to an estimated $115,000 last month from $240,000 in December 2005, according to a report the company published in mid-December."

"Lot prices elsewhere in southwest Riverside County fell 39 to 45 percent in the same two-year period, Hoffman reported. Existing single-family homes sold for an average $375,000 in that area in November, down 22 percent from a year earlier, according to the North County Times' analysis."

The Santa Cruz Sentinel. "Here is an edited version of the association's teleconference Thursday, Q 'We're seeing builders slash prices because of foreclosures flooding the resale market. How does that impact your forecast?'"

"A Nevin: 'The subprime market won't play out until the end of 2008 but foreclosures are less than 1 percent of market and those are homes of lesser quality.'"

"Q 'Don't you have a vested interest in saying things are looking up? A Nevin: 'I didn't take an optimistic position for 2007. For 2008, I'm predicting modest increases.'"

From ABC 7 News. "While some economists don't dismiss the prediction, they note the industry did not give much weight to the current foreclosure crisis which has flooded the market with existing homes for sale."

"'If this report had taken into account some of the features of the sub-prime mortgage crisis and the resulting credit crunch that is likely to still persist in 2008, it probably wouldn't have been as optimistic,' said Prof. Jessica Howell, Ph.D. from Sacramento State Economic Department."

The San Francisco Chronicle. "In the Bay Area, permits for 10,000 single-family units will be issued in 2008, up from about 9,000 last year, the group forecast. The increase should begin in the second half of the year, influenced by population growth, declining interest rates and a strengthening national economy, Nevin said."

"Several observers strenuously disputed the conclusions."

"'We have enormous inventory that is sitting out there,' said economist Christopher Thornberg. 'Until that inventory is burned off, there's not much reason to build in the state.'"

"The building group's report echoed a similarly rosy forecast from the National Association of Realtors last month, which drew equally incredulous responses. The report predicted existing home sales will rise to 5.7 million this year, following a 12.5 percent decline to 5.67 million in 2007."

"Thornberg said organizations that represent Realtors and builders generally can't be relied upon for accurate predictions about their industry."

"'I understand that they're hopeful, that their constituency is looking for some sort of bright light in the distance,' Thornberg said. 'The reality is that's just not realistic.'"

The Sacramento Bee. "Not so long ago, Sacramento-area home prices were miracles to behold in the eyes of Bay Area and Los Angeles residents. Oh, the wonders here of a sprawling, three-bedroom home for the same price as a tiny, one-bedroom condo there."

"The allure of lower-priced homes drew plenty of transplants to the Sacramento region earlier this decade. But as housing values began soaring, that affordability began disappearing."

"Well, look again. Those days are coming back."

"According to the most recent statistics, the median selling price of a Sacramento County home is now $388,000 below that of Santa Clara County. Just three years ago, that median gap was $225,000, according to a review of November sales data from DataQuick."

"Likewise, Placer County's median sales price in November was $178,000 less than in Alameda County. The gap three years ago: only $49,000."

"Many real estate agents say they aren't seeing any rush of would-be buyers from San Jose or Los Angeles. Henry Ung, an Elk Grove real estate agent who specializes in foreclosed homes, said, 'There has been some, but not a lot of (Bay Area) people checking out prices here.'"

"Nevin, chief economist for the statewide builders' trade group, says long-term mortgage rates will go as low as 5.5 percent this year. He also believes the government will 'take all steps necessary' to ease the subprime lending crisis."

"Finally, he predicts a 'major change in the home building mentality' in Sacramento, the Central Valley and Southern California's Inland Empire. Because of shrinking land values, Nevin says builders will offer 'substantially smaller homes and sell them for substantially lower prices.' In the Sacramento region, that means more prices below $300,000, he says."

"Effective Jan. 15, Fannie Mae wants bigger down payments on loans made in 'declining markets' like Sacramento. It means even if a national lender can get you a loan with no money down, Fannie Mae is now demanding a 5 percent down payment for loans in this market."

"If your loan requires 10 percent down, Fannie Mae will wants 15 percent from the borrower. Similarly, government-sponsored loan buyer Freddie Mac, is also tightening rules on loans in 'declining markets.'"

"The bottom line: Borrowers of loans up to $417,000 will need to bring more money to the table, which could further shrink the pool of qualified buyers."

"But it's beneficial for the long haul, says Brent Wilson, a mortgage strategist with Sacramento-based Comstock Mortgage. 'I think it's going to provide better long-term stability to our market.'"

"That's a nice way of saying that borrowers under these rules are more likely to make their payments and keep their homes."

The Modesto Bee. "The Northern San Joaquin Valley's housing market will be one of the very last to turn around in California, a building industry economist predicted Thursday. Alan Nevin said prospects for builders in Stanislaus, San Joaquin and Merced counties are not so rosy."

"Several of the region's remaining builders agreed with Nevin. They are bracing for another difficult year."

"'2008 will not be very good for home builders,' said Pam Franco, the new president of the Building Industry Association of Central California. She said there are so many resale homes on the market that builders have had to cut prices to compete, which has dramati-cally lowered profits."

"Steve Mothersell, owner of SCM Homes in Modesto, said small starter houses he had been selling for $220,000 at Park Villas at Sherman Ranch in Newman have been reduced to $190,000. He has approval to build similar floor plans in Riverbank, with prices starting in the $170,000 to $190,000 range."

"'Prices are back to where they should be in the Central Valley,' Mothersell said. Homes being built now 'cater to the local buyer and the local demographics,' unlike the much bigger, high-priced homes sold a few years ago."

"Mothersell said buyers should take advantage of the big cost cuts now, rather than waiting for home buying to regain popularity: 'These opportunities will dry up in short order when the herd starts to move.'"

"Local builders agree with Nevin about land prices dropping in the valley, which could lower the cost of future subdivision lots."

"Builders who purchased raw land for development in 2005 were paying as much as $300,000 per acre in the Northern San Joaquin Valley, recalled Franco. She said the record-high land prices pushed up home costs, but land now is being offered for substantially less."

"Franco's Heirloom Collection semicustom houses on one-acre lots near Atwater had sold for as much as $850,000, but a new model will have a starting price of $449,500. She said that model will be 'our loss leader, and its profit margin is substantially lower.'"