Pulte New House: 88% Off

This story has it all: incentives, a change in psychology, a cancellation, the flight of buyers, and finally a fire sale auction. Think of this as Sacramento's 2006 housing market in miniature. Bob Shallit has the scoop:

Discount digs: The declining real estate market has produced some bargains. But none like this: a Pulte-built home with furnishings and toys from outdoor gear retailer Cabela's, plus lots of extras.

For $5,000.

OK, this isn't exactly a full-sized residence. It measures just 8 feet by 8 feet. The furnishings are all pint-sized.

It's a playhouse, left over from the biannual "Dream, Play, House" fundraiser held in September by the Placer County Child Abuse Prevention Council.

Six local builders created incredible tiny homes for the event. Pulte's "Mother Lode Prospector's Cabin" -- with a sluicelike slide, a hidden cave, rope swing and a miner's cart full of fake gold -- was the auction's top attraction.

It earned an award for craftsmanship and received an auction-high bid of $16,000. But the buyer had a change of heart and stopped payment on his check.

"The home was left without a home," says CAPC's Donna Wood.

Nobody has stepped up since to buy the log cabin house. So CAPC has listed it on eBay (Item No. 200059385693). Minimum bid: $5,000 (including delivery). Deadline for bids: Christmas Eve.

The home actually is valued at nearly $40,000, including the furnishings. Good deal. Great cause.

Looks like something you might find on Burbed.

Have a Merry Christmas everyone!

The Centex 9-MONTH Sale

It's been over nine months since Centex made waves with its then unique "12-hour" sale that featured six-figure discounts. Unsurprisingly, it looks like those "one-time" discounts have morphed into lower prices. From the San Francisco Chronicle:

Home builders, who have been riding the crest of the housing wave for much of the past decade, now find themselves in the trough. With many more houses on the market than there are buyers for them, builders are slashing prices and offering perks from free granite countertops and hardwood floors to paid vacations to Hawaii. In Sacramento, Centex Corp. has slashed home prices by about $100,000, bringing down the average price of its new homes to less than $400,000.
...
[T]he extent of cancellations, price cuts and incentives in the Bay Area market is far less than in other parts of California, such as Sacramento, and many other cities around the country, said Keitaro Matsuda, senior economist at Union Bank of California.

"Our economic fundamentals are stronger and the amount of excess supply is much, much smaller," Matsuda said. "That tends to be the case because it is much harder to get permits and start building something here."

That's not the case in Sacramento, where developers say that price cuts have been much more dramatic than anyplace in the Bay Area. The average price of a home has fallen by about $100,000 to the high $300,000-range at Centex Homes developments in Sacramento, said John Ochsner, Centex's executive vice president of the Northern California region.

"Buyers over there are demanding price reductions and incentives and we're responding to that," Ochsner said. "We're backing off on our starts because we do want to control our inventory there. Buyers have all the power at the moment."
...
Even with the slowdown, builders still have projects in the pipeline that are entering the market. Instead of offering incentives for their newest homes, builders say, they are simply asking for less money.

Hat tip: Bay Area Housing Bubble blog

"No Sign of Daylight"

From Business Week:

How Deep Housing's Decline?
Rumors of the real estate market's resurrection are greatly exaggerated, according to three major homebuilders who see no sign of daylight

Remember those headlines about the U.S. housing slump possibly nearing an end, heralding a turnaround in 2007? Well, forget about it. Three of the major homebuilders just checked in with reports showing that they are decidedly not on board with that view.

In financial releases on Nov. 7, Beazer Homes USA (BZH) and Toll Brothers (TOL) said their new orders had dropped by more than 50%, while both continue to grapple with rising cancellation rates.
...
In a statement, Beazer Chief Financial Officer James O'Leary said the company had cut a quarter of its workforce, or 1,000 jobs, in September and October "in light of our reduced volume expectations" for next year. Toll also said his company had cut workers, but declined to offer specifics.
...
Toll also disclosed a record 585 contracts scuttled in the current quarter, amounting to 37% of the contracts signed in the fourth quarter, compared to 18% in the third quarter. But 25% of the current cancellations were in two markets, Orlando and Northern California.

KB Home CEO: Current Downturn Worse Than 1990s Housing Market Bust

From Fortune:

"I don't think the macro statistics reflect accurately what's going on in many local markets," says Bruce Karatz, CEO of national home-builder KB Home. In many once-hot regions, order cancellation rates are running above 40 percent, new-home sales volume has dropped 50 percent, and new-home prices are down 10 percent to 25 percent. Karatz says the current downturn is worse than any he has seen - even the early 1990s market that left so many big builders reeling.

Misery Loves Company

From News 10:

The seller's market is no longer. Buyers now have the upperhand, demanding upgrades, free landscaping and lower prices from new home builders. But what still stops some deals from closing is when the buyer can't sell his present home.

"There have been cancellations for that reason and that reason alone," says Judy Bennett of Roseville's Westpark development. "People are very nervous about that. They don't want to be left with two mortgages."

So Westpark's builders are getting creative. Lennar, Pulte and Centex are joining forces to offer a "We Stage Sacramento" exposition this coming Saturday. The point is to help would-be home buyers become home sellers...

"The days on market have increased greatly. We're seeing now anywhere from 120 to 160 days average for houses priced from 500 to maybe 800 thousand," Norris says. "That's huge."

By joining forces, Lennar, Pulte and Centex home builders hope the exposition will create business. "It's wonderful. We're all going to succeed together," believes Bennett.

Sacramento New Home Sales Headed For Eight-Year Low

From the Sacramento Bee:

New home sales lowest in eight years
Builders keep cutting prices to lure reluctant buyers as the region's spring pickup eroded over summer

A spring surge of Sacramento-area home buying ended abruptly during the summer months, heightening a slowdown likely to pull new home sales to their lowest levels since 1998, figures released today show...

The Gregory Group reported sales of 1,956 new houses in July, August and September in six area counties, a 37.4 percent drop from the previous three months. Sales prices are 3 percent to 5 percent lower than last year.

Actually, Yolo County's sales price is down 11.1% according to the Bee's chart.

In the first three quarters this year, home builders have sold 7,143 new houses in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to the Gregory Group. That's down 43.1 percent from the same period last year and puts the region on track to sell fewer than 10,000 new houses for the first time in eight years.

"It's a sluggish market and that's the world we live in today," Paquin said. In 2004, area builders sold 17,155 homes and condominiums, he said.

Metropolitan Sacramento has had the state's steepest drop in the number of new permits for single-family homes, said Alan Nevin, chief economist for the California Building Industry Association. Permits reflect builders' intentions to build more houses...

On top of the slow sales, about 20 percent of new homebuyers backed out of contracts during the summer, according to Hanley Wood. That's compared with about 4.7 percent during the same three months in 2005.

More Waves Hit Sacramento

The shakeout continues for Sacramento home builders. From the Sacramento Bee:

Ax falls at home builders
Firms shed executives, field staff in wake of slowdown.

After months of sales cancellations, production slowdowns and costly incentives to win customers, Sacramento-area home builders have turned to staff reductions and consolidations to help improve bottom lines, analysts and some executives say.

Several public and private home builders have shed executive and field staff in recent weeks, industry officials acknowledge. At least one builder has consolidated offices and another, Colorado-based Richmond American Homes, reportedly shifted its local operations base to Pleasanton after laying off approximately 25 to 30 staffers...

Schleimer, owner of Market Perspectives, said Richmond American made a sizable reduction in its regional work force in recent weeks. One of those laid off said the publicly traded Denver builder cut 20 to 25 management positions. The reduction followed five earlier position cuts, said the former staffer, who requested anonymity because final paychecks have yet to be received...

Among reductions confirmed:

• Los Angeles-based KB Homes, Inc., the region's No. 2 builder this year, cut 10 percent of its work force through reductions and attrition about 90 days ago. The job losses totaled "in the teens," said Barry Grant, the builder's Sacramento-based North Bay territory president...
  


• Dallas-based Centex Homes cut 10 people in June, Pautsch said. "It wasn't dramatic, but it was the first one we've ever done," he said. The firm has since hired field and sales staffers to open new neighborhoods, he said...
  


• Michigan-based Pulte Homes consolidated its northern and southern regional divisions last month into one office, said spokeswoman Judy Bennett. Though staffs were trimmed to reduce overlap, she said some have transferred elsewhere in the company...

Schleimer also said there were layoffs at D.R. Horton, Inc., the region's biggest builder with 740 sales this year...Horton's action also was confirmed by Lee Terry, a San Mateo executive recruiter for the building industry. "Horton laid off all through California and Sacramento," she said...

Builders have sold 6,265 new residences the first seven months of 2006 in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties -- 4,655 fewer than during the same months last year, according to Hanley Wood Market Intelligence, an industry tracker based in Costa Mesa. The firm reports that builders also are enduring higher rates of buyers backing out of contracts -- from 23 percent of sales in Sacramento County to 30 percent in El Dorado County.

Prior post on this subject.

Phase 5 of an Unraveling New Home Market

Ben Jones has a great discussion on his blog about what city or region is ground zero for the housing bubble. Sacramento has some worthy competition in the likes of Phoenix, Florida, and Las Vegas.

If there is one measurement in which Sacramento leads the country it is the rapidly declining new home market. Beazer called the Sacramento market the "toughest" housing market in the country. Sacramento leads the nation in cancellations. Apparently all the major homebuilders are walking away from land deals. Housing starts are down 55% and new home sales have plunged an astounding 59% from the prior year. Prices are flat or declining.

For bubble watchers in other markets, here's the progression to look for:

1. Incentives (vacations to Las Vegas, plasma tvs, cars, swimming pools, etc.)
   
2. Discounts ($150,000 off Centex 12-hour sale)
   
3. Constant Discounts or "Extended Sales" ($150,000 off Centex 28-day sale)
   
4. Stealth Price Reductions (Prices lowered but not trumpeted)
   
5. Public Price Reductions (Prices lowered and trumpeted)

Tim Lewis lowers prices at Legacy
Tim Lewis Communities has new pricing at its Legacy community in south Sacramento. Home prices at Legacy start in the low $300,000s. Previous pricing was from the mid-$300,000s.

Homebuilders Continue to Crank Out Homes as Inventory, Cancellations Rise

From the Bakersfield Californian:

The number of houses for sale in Bakersfield topped 3,000 in April -- the most the market's seen since the mid-1990s when the state was steeped in a recession. Roughly 3,200 houses sat on the market last month, up from about 770 at the same time last year, according to data compiled by Bakersfield appraiser Gary Crabtree. That's compared to about 2,480 homes for sale in 1994, shortly after the market took a drastic tumble.

Local real estate agents say the rapid climb in housing inventory since last summer doesn't mean prices will plunge. But they concede that it does reinforce a shift favoring homebuyers...Sellers are accepting offers lower than what they asked for and sometimes helping buyers with $4,000 or $5,000 in closing costs, Mallory said.

New construction homes are still in big demand, which is contributing to the glut of houses, said agent Chuck Dawson. "They're just cranking them out as fast as they can," Dawson said. Many new-homebuyers are moving up from existing houses that they then put on the market, he said. As older homes continue to languish on the market, the prices of new construction will likely also go down, he said.

Also, another article on cancellations in the Central Valley:

The number of local homebuyers canceling builder contracts has crept skyward in the past year, along with worries about rising interest rates and the real estate market's future. Kern County's cancellation rate was 8.1 percent for the first three months of 2006, up from 2.3 percent a year before, according to data from research firm Hanley Wood Market Intelligence.

Despite the increase, Kern's market is doing well compared to other counties, said Patrick Duffy with the Costa Mesa-based firm. Fresno's cancellation rate was 13.7 percent for the same period this year. During the mid-1990s, Southern California saw rates of 20 or 30 percent, Duffy said.

Cancellation Rates:
Southern California (Mid-1990s): 20-30%
Sacramento (2006): 28%

Cancellation Virus Spreads to the San Joaquin Valley

More news about new home cancellations, this time from the San Joaquin Valley:

The percentage of buyers backing out of new home purchases is significantly higher in some parts of the Northern San Joaquin Valley than elsewhere in the nation, according to Steve Smiley, another Hanley Wood executive.

"We're seeing cancellation rates as high as 30 percent in some projects," Smiley told builders gathered at a Modesto conference Thursday morning. His talk focused on new home sales in Stanislaus, San Joaquin and Merced counties, which have slowed dramatically since last year...

Sacramento Leads Nation in New Home Cancellations

In another indicator that the Sacramento new home market is the worst in the entire country, the Washington Post has this tidbit about cancellations:

Hanley Wood's survey showed the Sacramento area with the highest cancellation rate, 28 percent, up from 2.6 percent in March 2005.

Beazer Homes: Sacramento "Probably is the Toughest Market at the Moment"

Centex and Lennar are not the only builders being punished by the sinking Sacramento housing market. Now Beazer Homes singles out Sacramento as the market with the sharpest drop in new orders. In a conference call, a Beazer representative stated that Sacramento "probably is the toughest market at the moment" in the United States with "substantially reduced sales."

From Reuters:

Beazer Homes USA Inc. on Thursday reported a fiscal second-quarter profit from a year-earlier loss, but a weaker U.S. housing market pushed orders down 19 percent, prompting the company to lower its forecast and sending its shares down 4 percent.

Beazer, which sells homes largely to mortgage-rate sensitive, first-time home buyers, followed Pulte Homes Inc. and Centex Corp., who late Wednesday also reported double-digit declines in home orders as rising mortgage rates and housing prices pressured buyers. "This whole space, I thought it was bottoming out," said Keith Gangl, portfolio manager at Thrivent Investment Management. "Maybe it will take a little longer..."

Revenue, which reflects orders taken months ago, rose 30 percent to $1.27 billion, above analysts forecast of $1.19 billion. But orders for homes, which are not reflected in the revenue, fell 19.4 percent to 4,224, and were off 46.3 percent in the West. Sacramento, California, was particularly hard hit, as orders fell and cancellation rates rose.

"In a number of markets across the country, we have seen the pace of sales decline and price appreciation moderate relative to that experienced over the past several years, as evidenced by the lower net orders this quarter," Ian McCarthy, Beazer's chief executive, said in a statement.

From the press release:

Increased closings in Arizona, Colorado and Nevada were offset by a decline in California, which was particularly impacted by continued entitlement delays in Sacramento, which have led to slower than anticipated community openings, coupled with moderating demand in that market.

Net new home orders totaled 4,224 homes for the quarter, where increases in several markets in both the Southeast and Central regions were offset primarily by significantly lower new home orders in the West region. In addition, during the quarter the company experienced an increase in the rate of order cancellations from the prior year. In the West, sales declines in Arizona, California and Nevada resulted from both moderating demand and delays associated with community openings. Both of these issues were particularly pronounced in Sacramento, where new order declines were the most significant.

"Calm" After the "Frenzy" or Calm Before the Storm?

The Sacramento Bee had this article on their front page today:

Housing frenzy replaced by calm
Prices aren't soaring, buyers have choices: It's business as usual.

From West Sacramento's new suburbs to the association-governed neighborhoods of El Dorado Hills, would-be homebuyers appear to be encountering a long and almost forgotten phenomenon. It's the return of "normal."

In the cooling wake of Sacramento's five-year hot streak, a legendary era when prices skyrocketed and speculators abounded in the furious chase for a place called home, real estate is tilting amid mixed signals back toward the routine, say builders, analysts and agents in Sacramento and across the nation.

Back in vogue for the traditional spring shopping season: old-fashioned wheeling and dealing on prices, an abundance of choices, and even enticements such as plasma TVs, washers and dryers for signing on the dotted line. Gone are waiting lists and buying what's left when builders of new homes call your name on a Saturday morning. Out is the speculative "flipping" and jumping prices that terminated so many home-owning dreams and made first-time buying a panic. Also out is watching neighbors get their asking price the first day, a sensation that eventually placed metropolitan Sacramento among the West's more expensive areas for single-family homes.

On inventory:

Buyers in February could pick from 9,870 single-family homes for sale in Sacramento, Yolo, Placer and El Dorado counties, according to the Sacramento-based data firm, TrendGraphix. That's up from 3,554 a year ago. A year ago, the average home spent 37 days on the market. Last month it was 58 days, TrendGraphix reported.

On price:

According to the Sacramento Association of Realtors, home values in Sacramento County and West Sacramento stopped sliding in February. The association reported a 1.4 percent increase in median prices - where half the homes cost more and half cost less - from January.

On Centex cancellations:

Doug Pautsch, financial officer of the Sacramento division for Dallas-based Centex Homes, said the departure of speculators who backed out when the boom was ending accounts for the change. "It's about half of what it was in the fourth quarter," he said.

Sacramento Cancellations Quadrupled in Q4

So what's with all the new home incentives in Sacramento lately? Well, the Wall Street Journal (via The Housing Bubble blog) informs us that new home cancellations in Sacramento quadrupled in the final quarter of 2005 compared with the prior year. Obviously the shrewd investors knew which way the wind was blowing after prices topped out in August.

With the housing market cooling, a number of people are backing out of their agreements to buy new homes, spawning some opportunities for bargain hunters. Typically, new-home buyers must sign a contract and cough up a hefty deposit. But that isn't stopping them from saying 'no thanks.'

It is particularly noticeable in many California markets and in Washington, D.C.; Phoenix; and Chicago. In Sacramento, Calif., for instance, the number of cancellations quadrupled in last year’s fourth quarter from the year-earlier period. The typical reasons: Buyers can't sell their current home, or they are having trouble getting a mortgage or fear that they may be buying at the top of the market...

In some cases, builders are selling completed homes at prices lower than those charged for units still under construction; in others, they are offering other incentives, such as free upgrades or builder-paid closing costs.

Unless you have a compelling need to move, "it's better to be prudent and wait," says Ivy Zelman, a housing analyst with Credit Suisse. "It seems as if the builders are going to get more aggressive and offer more discounts that will make it more compelling for buyers." In some cases, she notes, buyers who thought they had nabbed a good deal have been surprised to find their builder offering a similar home at a lower price a few months later.

The higher cancellation rates right now are particularly notable because they come at a time when new-home sales are slowing in many of these areas. That is the case in Sacramento, where cancellations have jumped in part because buyers have pulled back from purchasing higher-end homes amid worries that they may be buying at the "top of the market," says Jonathan Dienhart.

Centex Cancellations Increase in Sacramento

MarketWatch reports that Sacramento is one of six markets where homebuilder Centex has experienced the largest increase of cancellations.

Centex Corp. (CTX) is experiencing a slowdown in demand for homes in certain markets, but that won't stop the company from generating record earnings in fiscal 2006 and fiscal 2007, company executives said during a conference call Wednesday.

There's no question demand is slowing in certain markets, such as Phoenix and Washington, D.C., executives said. Cancellations ticked up 175 basis points to 27.2% in the fiscal third quarter ended Dec. 31. But Eller said this still falls within the company's historic cancellation rate average of 20% to 30%. The biggest cancellation increases came in Phoenix, Indianapolis, Minnesota, San Diego, Sacramento, Calif., and Reno, Nev.

To combat this, the company has started offering incentives and discounts, such as special 12-hour 'blowout' sales, to drive traffic and sales at some communities. Discounts averaged 2% in the quarter, but affected less than 10% of the company's total inventory, according to Chief Financial Officer Lel Echols.

Echols also emphasized the discounting sales were held in markets that had seen "heavy runups in prices in the last year," where the discounts simply brought prices back to levels they were at six months ago.

Chairman and Chief Executive Tim Eller said the company's wide geographical footprint should allow Centex to offset weaknesses in some markets with strength in others. "For example, frothy markets such as Phoenix and Washington, D.C. are moderating, but our operations in the Carolinas and Texas are accelerating," Eller said. "Right now, our Sacramento and San Diego operations are also moderating while our five other California markets continue to be strong."