High Prices Choke New Home Sales

The Woodland Daily Democrat atrributes the new home sales plunge to high prices:

High prices for homes in Greater Sacramento are the reasons why home builders during the fourth quarter of 2005 have sold 56.7 percent fewer units than they did during the same time the previous year.

Every month, the California Association of Realtors reports the percentage of homes that are affordable to median-income households. CAR also reports housing affordability indexes for regions and select counties within the state.

In Yolo County there were 255 fewer homes sold in 2005 than in 2004 with a market over a year ago promoting 1,391 sales.

El Dorado County, however, shows the most dramatic change in sales from 1,055 homes to 580 homes.

The Sacramento Business Journal also reported on the drop in new home sales:

Greater Sacramento's new-home sales plummeted during the fourth quarter of 2005, when homebuilders sold 56.7 percent fewer units than they had a year earlier. That works out to 1,569 sales, down from 3,621. It was the steepest quarterly drop in the six-county region since the local housing boom began in 2002...

"Wow. That's a larger drop than I would have expected," said Brendan O'Neill, executive vice president of operations for Beazer Homes of Northern California, Sacramento's largest builder. Sales dropped at his own company, he said, because it did not have enough land ready for construction. Demand was there.

Many sales during the hot years were driven by reports of fabulous profits that put buyers into a state of "irrational exuberance," said Beazer's O'Neill. Warnings of higher mortgage rates prompted some to rush in while they could. Now potential buyers might be reacting to news that sales are falling by holding back. O'Neill sees demand for 20,000 units a year in the region, if the prices are right. The regional economy is solid, he said, and that will maintain the market in the long run. Prices had just gone too high for many buyers, he said.