RISMEDIA, July 17, 2009-New home sales remained very slow at 1.6 sales per month per community, and prices continued falling, according to 304 home building executives managing 2,089 new home communities in 93 metro areas. The John Burns Real Estate Consulting July survey also shows that the biggest challenge is now appraisals, which are frequently coming in well below the agreed upon sale price.
“The Texas region is faring the best, while the Southeast is faring the worst. California had the highest sales rates this month, driven by the expiring state tax credit and recent press regarding rising median home prices,” said Jody Kahn, vice president of Irvine, Calif.-based John Burns Real Estate Consulting.
Some emerging positive signs include:
- Some nominal price increases in the best locations in Washington D.C. and California,
- Reduced inventory levels and less competition,
- Higher expected sales for the next 6 months,
- Distressed finished lot purchasing opportunities,
- Increasing construction, and
- Cancellation rates that have been dropping.
In addition to the appraisals, negative signs include:
- Continued pricing declines driven largely by the foreclosure competition,
- The transition into the summer sales season, which is frequently a slower period in many markets,
- The expiration of the California and Utah tax credits, and
- The federal tax credit deadline is approaching.
Rising mortgage rates were not mentioned by many as a problem, according to CEO John Burns. “Although the home builder stocks have declined due to rising mortgage rates, and many of our investor clients have assumed that rising mortgage rates have impacted sales, rising mortgage rates were rarely mentioned in the builder commentary this month.”
Survey Highlights:
- Finished-Lot-To-Home-Price-Ratio is averaging 21%. By asking builders to do some math in a multi-part question, we calculated the average finished lot to home price ratio.
- The overall average ratio was 21% and 20%-33% was very typical. Representing each end of the spectrum is Ventura County, California with the highest ratio at 44%, while Port St. Lucie, Florida was just 4%. The long-time industry rule of thumb is that finished lots are 25% of the home price, and they probably reached 35% of the home price at the peak of the cycle in 2005 (our best guess).
- Pricing net of incentives continues to decline, at a slower rate: Builders in every region report prices remain under pressure from foreclosures and resales. The best located projects in Washington D.C. have been reporting some price stability for a couple of months, and we are now hearing reports of emerging price stability in some parts of California.
- Average net sales per community is flat at 1.6 sales per community per month nationally (4 would be the norm). Many private builders have sold their inventory but are unable to finance new starts, which may be dragging down the sales rate in some locations.
- Ratings of current sales and traffic were flat from last month, while expected sales rose slightly but remain low. A growing number of builders report traffic is off from May, but remains at elevated levels from one year ago. After dropping slightly for May and June, the national rating of expected sales rose slightly this month, and rests closer to Fair. The gain was mainly driven by improved survey ratings in the Texas, Midwest and Southern Florida regions.
- More builders start homes. 71% of our participants started between 1 and 4 homes this month. Only 20% reported no starts, down from 25% in June and 28% in May.
- Inventory declining slightly. The average number of unsold, finished units per community is 3.5 units, down from 4.0 last month. The Southwest, Northern California, and both Northern and Southern Florida report the most substantial declines in inventory per community.
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