Saturday, June 10, 2006

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."

8 comments:

Anonymous said...

"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.""

Is this guy on Crack??

Anonymous said...

Read an excellent explanation on another blog (forgot the link, sorry) why sellers aren't lowering prices: they can't. They can't because they need full asking price to either pay off 2nd mortgages, or they have high LTV ratios, or they are counting on last year's paper equity to buy on a contingency sale.

If you're asking $600k but owe $550k and are offered $525k, of course you say "no sale." It's an equity trap.

I think I'll stick with trading stocks:

R.E. Commissions: 4% to 6%
Stock Commissions: 0.1% or less

R.E. Liquidity: months
Stock Liquidity: 10-second guarantee

Anonymous said...

"If we slowed down our building, we would have to abandon our goals.""

(I am gonna read his mind and tell you the goals)
The goal is to make sure the company goes bankrupt so that all the houses are sold at an auction triggering a domino effect. or maybe it is a variation of They are building 10 houses we have to beat them we will build 20 no 30 no 40 no 50 no 100 (loosing the fact that someone has to be there to buy em) its a marketshare war.

Anonymous said...

As a long time home owner and construction company owner, my $0.01 is:

Publicly traded companies are run by people who have very specific quarterly goals to meet yet have NONE OF THEIR OWN MONEY AT STAKE. Sales goals cannot be met without product to sell, so production will occur whether demand exists or not. When unsold inventory builds up prices will be slashed to move homes off the books. ALL of this is a BEAUTIFUL THING for buyers.

Anonymous said...

I had an interesting discussion with a realtor/investor this weekend.

She said model homes in the Natomas are not selling. She had listed the homes for $625K in Jan '06 and even after dropping the price to $550 there are no takers yet.

Last year people were overbidding on model homes and they would sell within 2 days of listing.

BTW- she is a FB flipper, having bought a house in El Dorado Hills. She said her ARM loan is now 12%!!!

Anonymous said...

No worries Gwynster.

That poster was just another example of someone who is in denial. They are in stage one of Kubler-Ross - too bad the market is in stage three (IMHO).

Rob Dawg said...

It isn't thegross numerical population of California that matters, it is the demographics. The people leaving are taking salary and retirement benefits. The people arriving are destroying the wage base and consuming public services.

Anonymous said...

Norcal Ray, VERY FEW employees at public companies have golden parachutes.

At some point (the bottom of the market) the best place to get the best deal on a home will be from a publicly traded company as they will sell to clear inventory at prices that private companies could not match - prices that a private company would simply give the property to the bank before taking a loss.