New Home Price Stability Emerges in California

Regional Spotlight: New Home Price Stability Emerges in California

RISMEDIA, September 22, 2009—According to the John Burns Real Estate Consulting September survey of home builders, the housing market is stabilizing, with more builders raising prices than dropping prices in California.

“For the first time since we began our home builder executive survey 15 months ago, more California builders reported raising prices than those who reported prices were flat or down,” said Jody Kahn, vice president of Irvine, Calif.-based John Burns Real Estate Consulting.

This month’s sample consists of 269 home building industry executives from public and private companies (62 from California). In total, their insight is reflective of on-the-ground conditions in 86 MSAs and 1,855 communities.

The survey’s color commentary underscores the positive effect of federal intervention, though most builders also expressed concern about their prospects for the next six months as the Nov. 30, 2009 expiration of the federal tax credit approaches. Other challenges cited include ongoing competition from foreclosures, continuing appraisal problems, lack of job creation and a void in financing for future projects.

“The survey confirms our belief that the market bottomed in the Spring, and that it is highly likely there will be another leg down late this year or early next year,” said CEO John Burns.

Survey Highlights:

-Net sales per community increased nationally this month to 2.0 from 1.4 last month. The gains in net sales are driven by improved affordability, low conventional mortgage rates, and especially by the urgency around the first-time buyer Federal tax credit. There are plenty of reports of rising prices at lower price points, and spotty reports of sales gains at higher price points. Also, active adult communities in Chicago, Phoenix and New Jersey are reporting improved sales velocity.

-Cancellation rates continue to drop, with 61% reporting rates between 1% and 15%. The majority of builders are targeting entry level buyers, who don’t have a home to sell. Builders also report they stopped accepting contingent sales from buyers with homes to sell, which has reduced cancellations. Appraisal problems continue, but builders fight the low values and eat the unresolved difference to avoid losing the sale.

-Prices appreciating in California and flat elsewhere. Reports of emerging price stability in a growing number of metros are balanced by numerous reports of continued downward pressure on pricing from foreclosures and short sales. In almost all markets, the lower price points are faring better than the higher price points due to FHA financing and the Federal tax credit.

-Starts declined in all but 2 of the 10 regions of the country. Only Southern California and Northern California reported increased starts since last month. Many smaller, private builders lack financing to start new construction, sometimes even for pre-sold homes.

-The average unsold, finished inventory per community increased nationally to 3.7 from 3.2 last month. Regions that reported an increase include Southern California, Texas and the Northwest. National public and larger private builders, in several regions aggressively started speculative inventory during the summer to capture last minute buyers prior to the November 30th deadline for the federal tax credit.

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