The Sacramento Real Estate Market Has "Flipped"

The Sacramento Bee has an update on the incentives frenzy that has gripped the Sacramento housing market.

They'll give you refrigerators, pay your first year's homeowner association dues and cover your closing costs -- all to get new houses off their books. As Sacramento's housing slowdown continues and more existing homes sprout "For Sale" signs, home builders are ramping up the deals. What started late last year with free granite countertops now has escalated at places like Antelope's Winncrest Homes, where upgraded carpets, kitchen cabinets and lighting are in the offing.

Beazer Homes is promising $20,000 to $65,000 off. Some Centex Homes buyers can get a $125,000 price break. KB Homes has run ads offering $1,000 gift cards for buying in Yuba City, Natomas and Woodland. Pacific West Cos. hands out $10 gas cards for touring condos in Elk Grove and West Sacramento. "We're going to look at every objection and we're going to overcome that objection," said Vince Brennan, vice president of sales and marketing at D.R. Horton's Sacramento division. "No secrets," he said, "it's a buyer's market..."

What a difference a year makes. A short time ago, before the capital region's five-year housing boom ran out of steam last summer, builders were quickly selling whatever they built. There were waiting lists, near-weekly price hikes and even lotteries for desperate buyers.

Now the market has flipped. Avant Garde Development LLC recently wooed buyers to its Rocklin townhomes with 37-inch plasma TVs and no homeowners association fees the first year. In some ways, builders have begun imitating car dealers, advertising 48-hour "House Hunts" at KB Homes, "Zero Days" at Meritage Homes and the "biggest new home sale in the history of D.R. Horton." Others quietly send cards to "special guests" with offers of backyard landscaping and no closing costs.

The shift testifies to both fierce corporate competition among the nation's biggest publicly traded builders and to the region's growing accumulation of resale homes. There, too, real estate agents and sellers are testing incentives. In El Dorado Hills, Don and Suzi Garofano are offering a new $35,800 Jaguar automobile as enticement to buy their $1.67 million home on 10 acres overlooking Folsom Lake. "You gotta be real creative," Don Garofano said...

Gross and other home building analysts, including the Folsom-based Gregory Group and Hanley Wood Market Intelligence of Costa Mesa, say Sacramento-area builders are competing with a glut of resale homes at the same time they're seeing more canceled contracts for houses already started. Meanwhile, they continue to build -- even after selling 2,371 fewer homes during the first four months of 2006 than in the same period in 2005. "What happened was all the builders kept building at a higher rate than the market would absorb," said Jack Pautsch, Sacramento division manager for Centex of Dallas...

Greg Paquin, Gregory Group president, estimates 20 percent of the region's new homes are "standing inventory" -- finished houses without buyers. Many come with $40,000 to $80,000 worth of buyer incentives. "The builders don't want to carry it so they will make incentives to get it off the books," Paquin said.

As May began, new-home builders were competing with 11,344 existing homes for sale in El Dorado, Placer, Sacramento and Yolo counties. That's expected to climb another 1,000 homes when numbers for the entire month are released next week. "We put up 900 more signs in May than we took down," said Jim Eggleston, president of The Sign Post in Sacramento, which installs more than 90 percent of the region's For Sale signs. Another 1,000 homes on the market would rival the 12,361 homes for sale in June 1993. The record is 13,507 in April 1992, according to Sacramento researcher TrendGraphix...

With all that inventory, will the home builders slow construction? Yes, says Centex:

Pautsch said the deals reflect an oversupplied market and are likely to recede within weeks as builders slow construction.

Deals likely to recede? I think this is wishful thinking on the part of Centex. D.R. Horton says no:

Texas-based Horton, the nation's most productive home builder, sold 1,021 homes in the Sacramento area last year out of a nationwide stock of 51,000. Despite the backlog of unsold homes, the company aims to boost production 20 percent in the region this year. "We have our business plan and we're keeping pace," Brennan said. "If we slowed down our building, we would have to abandon our goals."