'Overhang' in Sacramento, New-Home Sales "Plunged" 45% in February

The LA Times looks at Sacramento's dismal new-home market.

In the West, which includes California, the sales plunge was even worse: down 29.4%, partly reflecting stalling sales in Sacramento and the Central Valley and in other Western states such as Arizona...

[N]ew-home sales in the Sacramento area have been much weaker, DataQuick said. Although sales there were up 13% in February from the previous month, that was after January marked the worst month in six years. As many new homes were sold in December as in January and February combined, according to DataQuick. And sales plunged 45% in February from the year before...

At certain new-home communities in Sacramento, for instance, builders slashed prices to close sales... "The Sacramento market went up very quickly, perhaps too quickly," said Patrick Duffy, a market analyst for Hanley Wood Market Intelligence..."It's like car dealers," Duffy said. "Once you start offering incentives, then everybody starts expecting them."

Meanwhile, Lennar, the No. 3 U.S. homebuilder has identified Sacramento as one of its weaker markets.

Lennar said it is using price reductions and other carrots to lure prospective buyers in softer markets such as Sacramento and San Diego, California, and Nevada and Colorado.

Lennar Corp. (LEN) Chief Executive Stuart Miller said he remains optimistic about the company's earnings prospects for the rest of the year and into 2007 despite cooling market conditions. "Market conditions have been slower in many of our major markets across the country," said Miller, during a conference call Tuesday. "Not only have price escalations slowed materially in most markets, but traffic has been cooling down as well..."

Miller acknowledges the company has faced some oversupply issues due to speculators - or flippers - deciding to sell - rather than buy - homes. This has created an "overhang" in certain markets that saw huge price increases over the past few years. Gross said demand has slowed in Sacramento, San Diego and Tucson, and the company significantly boosted incentives in Minnesota, Illinois, Colorado, Northern Virginia and Nevada in order to move sales.