SoCal home sales dip in October

There are two stories in the Los Angeles Times and the Riverside Press-Enterprise for which I opined yesterday. In both cases, I wanted to stress that (a) by October we're starting to move into the slowest quarter for home sales (both new and existing) and (b) we have no choice but to pay the consequences of the tax credit programs and other incentives which borrowed demand from the future. While I certainly support the idea of spreading out economic pain to avoid a depression, anyone who expresses surprise at falling sales when the market has to abide by normal fundamentals simply wasn't paying attention in Econ. 101.

You can find the L.A. Times story here.

You can find the Riverside Press-Enterprise story here.

Yes, there is still a move-up market in the Inland Empire!

Although one would think that the Inland Empire would not be a primary place for a builder to build move-up product, with the right price point even half-million dollars can be sold, something which Ryland Homes has been finding out lately. From a story in the Riverside Press-Enterprise:

Dale F. Casey, Ryland's Southern California division president, said Sunset Ridge is the first new community that Ryland has launched in the region in about five years. He said Ryland aims to build homes that can compete with existing houses for sale in The Retreat. He said he also expects to attract buyers who want to avoid the risk of buying foreclosed homes "as is."

Houses in the first phase at Sunset Ridge range from 2,695 square feet to 4,248 square feet and are priced from $489,550 to $594,240. They have such amenities as hardwood cabinets, granite countertops, stainless steel appliances, extra-wide staircases, walk-in pantries and cavernous master suites.

Sunset Ridge homes are unlike most new homes being built in Inland Southern California that have been downsized and streamlined for young, first-time buyers. Move-up home construction generally is considered risky for builders today because many homeowners who would like to upgrade won't accept the deflated prices that their existing homes will sell for or are stuck in homes that are worth less than the mortgages on them.

Patrick Duffy, principal of MetroIntelligence, a Los Angeles real estate consulting firm, said The Retreat is "one of the few places in the Inland Empire where you can build move-up (homes) and get away with it in this market." He said that is because of the community's upscale appeal and location, where it can compete favorably on price with nearby Orange County.

Casey said he believes there are well-qualified buyers with cash "who have been waiting on the sidelines for an opportunity to buy their dream."

Heather Stevenson, vice president of sales and marketing for Ryland's Southern California division, said some potential buyers intend to rent out their existing homes and make a down payment on a new one with cash tapped from their savings or retirement accounts...

Click here for entire article.

Riverside Press-Enterprise covers trend of smaller homes

The Riverside Press-Enterprise's Leslie Berkman recently covered the ongoing trend of builders creating smaller homes in today's environment, and spoke with MetroIntelligence Principal Patrick Duffy on the impact on the state and federal tax credits in this year's housing rebound.

Patrick Duffy, Principal with MetroIntelligence Real Estate Advisors, a Los Angeles-based real estate consultant, said, "It is too early to tell if we are in a recovery until we are working with market-based fundamentals of supply and demand without federal benefits."

You can read that entire article here.

New home sales down by 1/3 from last year

As builders continue to compete -- generally unsuccessfully -- against heavily discounted foreclosures and are unable to obtain financing for new homes, sales of newly built units fell by 33% between May of 2008 and 2009. But is a bottom about to be reached? First, from an L.A. Times story:

The seasonally adjusted annual rate of new-home sales was down 0.6% from April and fell 32.8% from May 2008, amid a glut in housing. New-home sales in the West, however, were up 1.3% over April's adjusted annual rate...

The median sale price for a new home in May was $221,600, down 3.4% from a year earlier.

But in the battered Inland Empire, the pace of decline is showing marked signs of slowing. Yesterday I spoke with Lou Hirsh of the Riverside Press-Enteprise:

Inland new home sales in April were down 20 percent from April 2008. That is lower than the 28 percent year-to-date decline compared with the first four months of 2008, and the 41 percent decline seen for the period of May 2008 to April 2009.

"That tells me that we're getting closer to the bottom," said Patrick Duffy, a principal and analyst with MetroIntelligence Real Estate Advisors in Los Angeles.

Duffy said the cancellation rate on new Inland homes in April was 7.8 percent in April, versus 22 percent a year ago. Declines in inventory absorption rates and median asking prices are also less severe than at the same point of 2008...

National experts said that without bigger price cuts, builders may keep losing market share as the jobless rate and foreclosures climb, aggravating the drop in resale prices.

"Further increases in mortgage rates would be a huge concern amid rising unemployment and falling incomes," Aaron Smith, a senior economist at Moody's Economy.com in West Chester, Pa., said before the Commerce Department report...

Investors returning to California's Inland Empire

The rapid decline in prices in the Inland Empire is now starting to draw various investors, who either buy/flip, buy/fix up/flip or buy/rent for cash flow. From an article in the Riverside Press Enterprise:

After retreating in fear from housing's sudden collapse, those who buy homes as an investment are reappearing in Inland Southern California's beaten down marketplace.

Sharply discounted foreclosed properties are luring back the first wave of professional investors and amateurs, both those hoping to "flip" for a quick buck and those wanting to buy and hold for a future rebound...

The process of "flipping" is still risky, many experts warn, since the investor has to take into account that home values continue to fall, which could erode anticipated profits from a resale..

Brokers say most prospective investors, many of whom were burned by waiting too long to sell properties before prices plummeted, still remain timidly on the sidelines.

Mike Novak-Smith, a broker-agent with Re/Max Results in Moreno Valley who specializes in selling repossessed houses, said since the summer he has seen an influx of investors, who he said now account for about 30 percent of his buyers. He said most seem to be novices, while the more seasoned are waiting for prices to fall further.

Investors also must cope with government regulations designed to rein them in. Fannie Mae and Freddie Mac enforce a limit of four homes per borrower, and the Federal Housing Administration requires the seller of a house purchased with an FHA-insured mortgage to have owned it at least 90 days...

The rekindling of investor interest is bad news to some people who blame investors for having fueled the recently burst real estate bubble.

Investors say they are generally targeting the cheapest and most dilapidated houses nobody else wants and turning them into the nicest-looking houses in the neighborhood...

Not everyone agrees that investors perform a public service.

John Marcell, an Upland mortgage broker, said the FHA will lend up to $35,000 to first-time buyers for repairs or improvements. He said he worries that investors will again inflate home prices by flipping.

Marcell also said that investors who buy houses for income and future appreciation will contribute to an oversupply of rentals.

Prudential California Realty agent Marni Jimenez said in competition for houses, investors generally have an edge over first-time buyers. She said that is because investors come with a substantial down payment.

Investors also tend to have conventional financing that lenders prefer over the FHA mortgages that are geared for entry level buyers that take longer to arrange.

Inland economist John Husing said investors who are buying bank-owned houses for rental income further deteriorate neighborhoods and attract crime. "It is a great strategy for the investor but a disastrous strategy for the community," Husing said.