Friday, January 12, 2007

More home sales, but lower prices - Sacramento Business Journal:

Sacramento Business Journal - January 12, 2007

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More home sales, but lower prices
Sacramento Business Journal - 9:19 AM PST Friday
by Michael Shaw
Staff writer

While analysts aren't ready to declare an end to the housing slump, the surprising news from the fourth quarter was that buyers were drawn back into the region's new-home market, a report released Friday said.

It could be a blip or a larger indication that the market hit bottom months ago.

"I thought the fourth quarter would be more of the same," said Greg Paquin, president of The Gregory Group, which compiles the closely watched report. "It seems to me that we've staved off the continued downward trend we've been seeing. Ultimately, one quarter doesn't tell a shift one way or another, but I was pleased to see it."

Paquin said it's an unexpected turn, especially for the time of year when home buying is usually the slowest, and may be due to builder incentives and dropping prices.

Some builders confirmed that they had a much better quarter than expected.

"Our increase is 235 percent," said Jill Shannon, vice president of sales and marketing at Dunmore Homes in Granite Bay. The company had 47 sales in the fourth quarter, compared to 14 for the same three-month period in 2005.

"We're cautiously optimistic," she said of the increase. "Everybody is waiting to see how it's going by mid-2007."

The local office of KB Home posted an increase of about 20 percent compared with the previous year, said territory president Barry Grant. The national homebuilder was the third-largest in the Sacramento region in 2005, selling 1,071 homes.

Overall sales were up in the fourth quarter for Sacramento, Yolo, El Dorado and Placer counties, compared with the prior quarter and with fourth-quarter 2005. About 2,400 new homes sold in the last three months of 2006, up 57 percent from the same period in 2005.

On a county-by-county basis, the biggest winners for new-home sales were Placer and Yolo counties, which had sales rivaling those during the tail end of the housing boom.

Early reports from the resale market seemed to show the opposite story -- a decline in sales compared with last year. While fourth-quarter figures aren't available, a market analysis from Lyon Real Estate showed sales of existing homes dropped by about 34 percent for the three-month period of September through November, compared with the same period in 2005.

But as sales perked up for new homes, prices generally fell. Paquin said that suggests builders are cutting deals. The median home price -- meaning half the homes sold for more and half for less -- dropped in the four-county area to $434,990, a 4.7 percent decline compared with a year earlier. The average price was also down, falling about 3 percent from last year to $474,000.

It's a rare situation when homebuilders can take heart in climbing sales and buyers in falling prices, Paquin said.

"Look at Yolo County," Paquin said, where the average price plummeted by about $65,000. "The interesting thing is how rapidly it's going down. Buyers may be saying that, whether it's hit bottom or not, the prices are good enough for them."

Incentives such as upgrades to appliances or floor coverings, which don't show up in a home's price, are making the true cost of a home even lower.

Another positive indicator was that the new-home inventory also fell, for the first time in two years. Inventory can include everything from a completed home to a lot that's ready for construction.

At the end of December, the inventory stood at 3,925 homes, down about 600 compared with the end of September. That's about a 14-week supply if builders were to stop developing new homes altogether. Compared with the three-week supply of new homes or lots available in early 2005, it looks bleak for builders. But it's the first time the inventory trend has reversed over the past two years.

The inventory of resale homes has also been dropping steadily for the past several months though analysts aren't sure whether that's a seasonal shift or a positive indicator.

The stronger numbers have been backed up by stories from developers, Paquin said.

"They're telling us that their cancellation rate is way down," he said.

A version of this story also appears in the Jan. 12 print edition of the Business Journal.

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