Home prices top out? Cost of new houses levels off in area after meteoric rise By Andrew LePage -- Bee Staff Writer Published 2:15 am PDT Friday, October 7, 2005 Story appeared on Page A1 of The Bee
Price appreciation for new homes in the Sacramento area has slowed to a crawl, with more builders tempering or skipping price increases and offering greater incentives to attract buyers. The median price of a new home sold in the capital region was $459,990 in the third quarter, unchanged from the previous quarter and up 3.4 percent from one year ago, according to the Gregory Group, a Folsom-based market research firm. For the same July-September period last year, the new home median shot up 23 percent for Sacramento, Placer, El Dorado, Yolo, Yuba and Sutter counties. "In general the market is responding like it should, based on what's happened with price increases the last couple of years," said analyst Greg Paquin, who heads the Gregory Group. "If we kept going at the same (appreciation) rate we would have been in trouble. We couldn't have sustained it, and we would have fallen off the proverbial cliff." Sales incentives and a surge in lower-priced condos and homes on small lots helped push overall third-quarter sales up 4.5 percent, but sales so far this year are down 7.5 percent. The lost steam in the new home market is the latest in a string of signs that the region's seven-year housing boom is winding down to a more normal pace of sales and appreciation. For example, sales of existing homes fell 7 percent in August and the number of resale homes on the market roughly doubled compared with a year ago. Paquin's forecast calls for the median sale price of a new home in the capital region to rise 1 percent to 5 percent annually for the next two to three years as job and income growth catch up to home prices. That forecast could include a dip in prices at some projects, especially those with homes priced over $600,000. Some economists and housing analysts view Sacramento homes as overpriced and vulnerable to significant price declines in the event of an economic shock, such as an interest rate spike. But most predict a "soft landing" for the market, meaning mild price declines, if any, as long as the national economy stays out of recession and local job growth continues. "The outlook for the (Sacramento) region over the next five to 10 years is very bright, in my opinion; so consequently the outlook for the number of homes sold and the prices for those homes is very good," said economist Matt Newman, who tracks the Sacramento market for the Stanford Institute for Economic Policy Research. "But because interest rates are rising and prices are already so high, I don't think you'll see a lot of price appreciation over the next few years." Today's new home market bears little resemblance to the frantic one of the last few years when buyers waited in lines overnight, entered lotteries and put their names on long waiting lists for a shot at buying a home. Now most builders are offering incentives worth $1,000 to $50,000 as they work to sell a growing number of houses that are under construction without a buyer lined up. In the last year the number of homes available for sale - including bare lots and homes under construction but not yet completed - has jumped 89 percent, to 2,303 in the third quarter, the Gregory Group reports. Often a buyer has backed out or the builder has forced someone out of a deal. Such "cancellations" have roughly doubled in the past year, to about 28 percent of all sales in the third quarter. Builders say they are ferreting out more investors. At the same time, more buyers are getting cold feet or simply failing to obtain financing. "I wouldn't say it's totally a buyers' market," said Jack Hood, president of Centex Homes' local division. "But it's getting to be more of an equilibrium between buyer and seller. If they can find a house that's nearing completion they can probably negotiate a better deal." Many shoppers realize the market is turning in their favor. "It looks like it's a buyers' market right now," said Joe Gilmette as he toured a model home one recent afternoon at the burgeoning Anatolia community off Sunrise Boulevard in Rancho Cordova. "There are a ton of homes on the market and maybe there will be some room to negotiate. I can make a good decision and not feel pressured." Gilmette, who works in law enforcement, noted that six months ago "all of the builders had waiting lists and all of the lots were gone." The number of new homes sold in the six-county region fell 12 percent in the third quarter compared with the second quarter - a seasonal dip also seen in previous years. Hood, the Centex president, said builders have caused much of the market's slowdown by preventing investors from buying. Investors hoping to "flip" homes for a quick profit compete with builders for sales. And investors buying homes to rent out perturb neighbors who resent "For Rent" signs in their new neighborhood. The builders' efforts to shun investors, who have reportedly made up about 20 percent of purchases in some subdivisions, and investors' own decisions to stop buying here may help explain why the median price for new homes hasn't moved much of late. Analysts say the new home median - the point where half of the homes sold for more and half for less - has also been constrained by two other factors: a slower resale market that's slowed the number of homeowners moving up to more expensive homes and ballooning sales of less-expensive condos and detached homes on small lots. Condo sales, including newly built units and conversion of existing rental apartments, rose 84 percent to 620 in the third quarter, the Gregory Group reports. So far this year the more than 1,900 condo sales are nearly triple the total for the first nine months of last year. The market share for condos and small-lot detached homes combined has more than doubled in the past year to 33 percent of all new homes sold in the region. Builders started switching to condos and higher-density detached homes two years ago as fewer and fewer Sacramentans could afford the typical tract home on a 4,000-to 7,000-square-foot lot. The median price for that typical tract home rose 11 percent to $459,490 in the third quarter from a year ago. The median condo price in the third quarter was $304,990, up 20 percent from a year ago, the Gregory Group said. "The local builders who haven't built (attached homes) before better start looking at it if they expect to maintain market share or sales volume as the market softens," said analyst John Schleimer, owner of Roseville-based Market Perspectives. Builders face a number of challenges: rising costs for certain construction materials in the face of hurricanes Katrina and Rita, a sharp drop in consumer confidence, rising interest rates on home loans and a small number of lenders beginning to limit the higher-risk, more innovative financing. ========================= > ----------- > October 08, 2005 > Asking prices drop by nearly 15% in 16 suburban Boston towns > > Price_reducedHomeowners in Greater Boston and elsewhere continue to > expect "big real estate gains" despite a stunning revelation this > week: "asking prices in 16 MetroWest towns have dropped by nearly 15 > percent" since August, according to MLS statistics. ------------------------ Yahoo! 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