Repossed Home For Sale

Sales of newly built homes sank last year at the steepest pace since record keeping began in 1963 and home builders expect their worst recession in decades to persist until at least the middle of this year.

New home sales totaled 774,000 in 2007, off a staggering 26% from 2006, the Commerce Department said Monday. And the drop could turn out to be even more dismal: Last year’s figures are expected to be revised down next month after contract cancellations are counted. The median price was nearly flat at $246,900.

“The situation seems to be getting worse,” says Jerry Howard, CEO of the National Association of Home Builders, who expects the market to bottom in the spring. The 9.6 month supply of new homes for sale a record is “really distressing,” he adds.

Since peaking in July 2005, new home sales have plunged nearly 57%, and construction permits have fallen to half the level they were then.

“Home builders are cutting production, but with sales still collapsing they have to run to stand still,” says Ian Shepherdson of High Frequency Economics. “There is no sign of a bottom in any of these data.”

For December, new home sales fell nearly 5% from November, to a seasonally adjusted annual rate of 604,000, down close to 41% from the previous December. For the month, the median price at which point half the homes cost more, half less was $219,200, a stunning 10% decline from the year before and the largest drop in 37 years.

Kim Shelpman, CEO of Holiday Builders based in Melbourne, Fla., says she’s cut prices back to 2003 levels. “Obviously, in the short term, the outlook is quite bleak,” she says. Still, she adds that the recent drop in mortgage interest rates has led to more potential buyers visiting Holiday’s communities and its website.

In markets where prices are sliding fast, there are deals aplenty for buyers like Jennifer Tischafer and her boyfriend, Brian Ignacio, who bought a home last month from KB Home in Gilbert, Ariz.

If the price of their $215,000 home drops in value before all the lots in the development are sold, KB Home says it will pay them the difference.

“We decided after a couple years of renting together, we wanted to buy a house,” says Tischafer, 29.

The NAHB says about 4% of builders were guaranteeing home values, 58% were offering price cuts, more than half were paying some buyers’ closing costs and 61% were offering free upgrades, according to its November survey of about 400 builders nationwide.

The 3% drop in March is more than expected, eroding hopes that the real estate market had reached bottom.

Existing home sales declined 3% in March according to an Apr. 23 report by the National Assn. of Realtors, falling short of expectations and offering new indications that the real estate market may not have reached bottom.

Existing home sales declined to a seasonally adjusted rate of 4.57 million units in March, down from a 4.71 million rate in February. The sales were 7.1% lower than in March 2008. Sales had been expected to fall to an annual pace of 4.7 million units, according to Thomson Reuters (TRI).

The February rate was revised slightly downward from last month’s report. The February report had shown an uptick in home sales, leading to hopes that the real estate market had been bottoming out.

“The share of lower priced home sales has trended up, indicating a return of many first time buyers, which we also see in a parallel member survey,” Lawrence Yun, NAR chief economist, said in a news release. “Sales in the upper price ranges remain stalled because of higher interest rates on jumbo loans.”

Distressed Properties: 50% of March Sales

First time buyers accounted for 53% of all transactions and are responding to low mortgage interest rates and tax credits, the real estate group said.

National median prices for all housing types rose 4.2% from February to March, to $175,200. That remains 12.4% below the level of a year earlier. “Distressed properties” made up just over half of all transactions in March, the group said.

Paul Dales, U.S. Economist at Capital Economics in Toronto, said the March decline “is probably just noise rather than a renewed downward trend.” Dales added, “Admittedly, around 50% of sales are now related to distressed properties, which is hardly a sign of strength. But at least these sales are helping to reduce the inventory overhang.”

First time home buyers and investors are jumping to take advantage of state and federal tax incentives, low interest rates, and prices that are more affordable than they have been in many years. California’s median home price climbed in April on a monthly basis for the second straight month. That hasn’t happened since August 2007, the California Association of Realtors reported on May 28. Home sales in April rose 49% compared with April 2008.

The most promising sign of stabilization is the strikingly low inventory of unsold homes well below the historical average. It would now take 4.6 months to deplete the state’s supply of unsold houses at the current sales pace. Supply was as high as 16.6 months in January 2008, and the long term average for the state is about seven months.

The median price for a single family home in California was $256,700 in April, down 36.5% from a year earlier but 1.4% higher than the previous month, according to the California Association of Realtors. Other states aren’t faring as well. Inventory levels in Arizona and Nevada remain high. And Florida’s supply of unsold homes is two or three times normal levels, according to John Burns Real Estate Consulting in Irvine, Calif. tens of thousands of foreclosures expected

Despite the positive signs, California faces a bumpy road to recovery. Unemployment is still rising, foreclosures are expected to accelerate in coming months, and the luxury market is weak not only because jumbo loans are expensive and difficult to get approved but also because few buyers are willing or able to take a risk on pricey properties. Even the California Association of Realtors&mda which is saying prices are likely close to the bottom expects some additional pressure on prices as tens of thousands of foreclosed properties enter the market later this year.

But home prices, which have fallen more than 50% from their peak in some areas of the state, probably won’t fall as far or as fast, said Delores Conway, director of the University of Southern California Casden Real Estate Economics Forecast. “There are a lot of headwinds, but we have tailwinds as well,” Conway said. “If we were in a normal economy, we’d be fine. The problem is, this is still not a normal economy, and there’s still a lot of uncertainty out there.”

Mark Goldman, a mortgage broker and lecturer in real estate at San Diego State University, says the bottoming of the California market might feel a bit like a rough airplane landing. “Imagine the runway as the theoretical bottom of the market,” he says. “I’m confident we’re near a bottom,” Goldman adds. “But nobody knows we’ve hit a bottom until we’ve passed it.”

San Diego, which was one of the first bubble markets to burst, now is one of the tightest markets in the state. It had only a three-month supply of unsold homes in April, according to the California Association of Realtors, which ranked California counties for BusinessWeek.com, based on the tightest inventory levels. Other tight markets include Sacramento County and Riverside/San Bernardino counties [in Southern California's Inland Empire], which also have less than four months of inventory.

California’s $10,000 tax credit for new buyers

Peter Toner, a Realtor at Prudential California Realty in San Diego, says luxury homes are lingering on the market, but properties listed for less than $400,000 are selling quickly. In many cases, these are also homes that are selling at a steep discount.

“You’ve got people making multiple offers on multiple properties because they’re eager to acquire something,” Toner says. “Anything that can be bought right away like a foreclosure or a seller who has a home that is properly presented and isn’t underwater they’re hot to trot.”

California has some advantages over other states that were also ravaged by the housing slump. Construction in the state’s coastal areas was fairly limited during the boom and unlike Florida and Nevada builders focused on single family homes rather than condos, resulting in fewer new housing units. And California, despite its economic problems, has a diverse job market, natural beauty, top schools, cultural depth, and great weather.

Moreover, in March the state also began offering a $10,000 tax credit for buyers of new homes. That’s in addition to the federal government’s $8,000 credit for first-time buyers. Buyers now feel a sense of urgency to take advantage of the programs before they end, says Lisa Marquis Jackson, a vice president at John Burns Real Estate Consulting.

“I don’t think there’s a fear [among buyers] of home prices falling a whole bunch more,” Jackson says. “Now the fear is if you’re going to have a job or not.” John Burns, president of the firm, says he expects San Diego to lead the way in recovery. But California’s not out of the woods. “We’re probably in the seventh inning of the downturn,” Burns says. “Sales volumes are increasing, and supply is coming down, but until job growth returns, we probably don’t see prices stabilizing.”