New-home buyers say ‘no way’ at any price
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There’s no quicker way to get a handle on the softness in the local new-home market than to flip through the home-builder ads in the weekend paper.
‘Huge Inventory Reduction Sale -- Up to $200,000 Off’ was one ad for houses by Century Vintage Homes in Riverside and San Bernardino counties that caught my eye. At a golf course community in Desert Hot Springs, homes were being marked down from $565,000 to $365,000.
But the fact is that all this builder price slashing isn’t doing much to juice sales. Indeed, the price reductions may be stoking fear instead of interest, concludes Daniel Oppenheim, a building-sector analyst with Banc of America Securities.
Each month, Oppenheim surveys real estate agents in 40 of the top new-home markets to get a bead on buyer traffic trends. Not surprisingly, his survey for October found that, despite traffic being up slightly, few deals were getting done.
Agents noted price declines in every market surveyed. However, agents said that lower prices failed to attract buyers because potential buyers focus on the risk that prices will fall further rather than perceived bargains.
In the Inland Empire -- which is the fifth-largest U.S. new-home market and the largest in SoCal -- buyers still seem to be waiting for prices to bottom out.
Only vultures (people feeding off foreclosures) seem to be looking, one I.E. agent told Oppenheim.
His take: Weak conditions will persist until prices come down far enough to bring affordability back to normal levels or the mortgage market loosens up, with the latter being an unlikely near-term scenario.
The Inland Empire’s problem is also one of massive new-home inventory. Steve Johnson, an industry analyst for MetroStudy, reports that vacant-developed-lot inventory in the I.E. rose 47% in the third quarter from a year earlier.
Based on the annual starts rate, there was an 18-month supply of vacant developed lots at the end of the third quarter, compared with a 7.6-month supply at the end of the third quarter of 2006, Johnson says in a new report.
The good news, if there is any, is that I.E. housing starts are down 36% year over year, Johnson says. What’s more, the majority of starts that are being added to the pipeline are for homes in the $325,000-to-$424,000 range.
Existing home sellers, take note. Home builders seem determined to set the new market prices.
Thoughts? Comments?
-- Posted by guest blogger Annette Haddad