Southern California new home sales hammered by competition from foreclosures

From Los Angeles Times Staff Writer Peter Y. Hong

The California Building Industry Assn. reports dismal sales of new homes in May. In the Los Angeles/Long Beach/Glendale area, May new home sales were down 79.4% from a year ago, according to the CBIA/Hanley Wood Market Intelligence report.

That’s 145 new homes sold, compared to 703 in May, 2007. The median sale price of $409,990 was down 23.2% from the $533,990 median price the same month a year ago.

Santa Ana/Anaheim/Irvine fared better, with new home sales down 37.2% in May compared to May 2007. The median May sale price there, $623,000 was down only 1.9% from a year ago.

The CBIA said in a statement that competition from sharply discounted foreclosed homes hurt sales, and called for passage of the housing stimulus bill now in Congress.

Your thoughts? Comments? E-mail story tips to peter.hong@latimes.com

Photo Credit: Associated Press

Comments

[RM]

While this may be painful for the building industry right now, especially for the many people out of work, over time a slow down in construction will put the market back in balance. In my county we have seen a 70% drop in new construction as many builders are not willing to do any spec building. Also the homes that are being built are smaller and with a lot less upgrades than just a few years ago. Up until a few years ago most of the homes being built were over 2000 sf and now I'm again seeing many more in the 1200sf to 1600sf range. This should also help make homes more affordable, especially for new home buyers.

[MyLessThanPrimeBeef]

Is the guy in the picture holding a drill to his own head?

Things can't be that bad.

[Gene J]

The builders in my area who I really respect because they see which way the wind is blowing are selling their raw land. Since it is still farm land the taxes are cheap. It is clear that they see no quick turn around and maybe none for 5 years. Otherwise they would just hold on to it. Maybe it is the interest on the carrying costs but the land is being dumper.

By the way some of the foreclosure hoses here just had their asking prices lowered another 10% because they had not sold..

[perks]

I've been to probably a hundred new home sales offices in the past month (long story, but it's work-related). All of my visits have been on weekends, which are of course typically the busiest periods. Some of these places are complete ghost towns (especially in the Antelope Valley, where I would say half of the communities have shutered their sales offices, though a good number are still hanging on). The only places that were doing what I would call brisk business are the the builders that have been doing well-advertised price-slashing.

On the plus side: builders that have been doing well-advertised price-slashing are actually seeing traffic. Last fall, pretty much every sales office was sitting empty.

Will this traffic lead to increased sales? Hard to say, but my guess is no. I wouldn't be surprised if many of these builders are clinging to their new homes based on nothing but hope that things will improve.

And they will improve. But it's purely a function of how much more the builders can lower their prices and bring some level of affordability back into their products.

[cclopper]

Another stimulus bill.

Can any of these ass-hats find a way to survive without a handout? It's completely pathetic.

[Laker]

RM wrote: "... I'm again seeing many more in the 1200sf to 1600sf range. This should also help make homes more affordable, especially for new home buyers...."

RM,
why don't they build 500 sf houses...that should make it affordable for 1st time buyers....right?
What kind of crap is that? If they are asking $300 per sf on 2000sf house to be $600,000 , they still will ask for $300 per sf on 1200 sf house to be $360,000..
If they want to sell the damn stucco box, they need to lowered it to afford ability level, that is $100 per sf and that means $200,000 for the 2000 sf house. AND THAT IS WHAT YOU CAN FIND TODAY in the high desert and IE.

And CBIA, why don't you ***F*** up your stimulus package and pay for it yourself. We the tax payers don't want/need to sponsor your profits!

[Cal]

The problem for new home sellers in LA county and exurbs isn't foreclosures, that is a symptom of the real issue. Their inventory is in the wrong place, it was always in the wrong place. But people were willing to buy a home in those places because that was where the homes were less expensive.

Now with people seeing that it was a bubble and high gas prices the homes in the outer regions are just getting clobbered. It is like the home builders are trying to sell fur coats in the desert. They'd have something valuable if they were in a different area.

[CD]

Senator Jim Bunning (Kentucky) is the only one standing up to Paulson. He is my guy. He is on Kudlow and he is the only one making sense.

[RM]

Cal, you make a good point. Putting homes in a place where people would actually want to live in would make a big difference. Living in the desert is not something most people can get used to, especially after living near the coast.

Laker, you say homes should sell for $100 per sf. While that may be possible in a few areas where permits and land are extremely cheap, like the desert, this may very difficult for builders to accomplish. In my area a building permit, including school and development fees, starts at around $35,000. A decent size lot costs about $70,000 to develop with streets and city services. Throw in about $15,000 for plan and loan fees and you're already at $120,000. That's already $100 per sf on a 1200sf house.
So how would you build the house with no more money, any ideas? Stealing the lot and building without a permit does not count...too easy to get caught.

[Laker]

RM,
I know very well about the permits, school taxes, fire department, county, city, etc.
However, there is a nice profit in building houses. I got a pal that is building his own house using sub-contractors. Everything is legal with permits. His cost to build is about $50 per sf. That is including everything and land!
Yes, he is building cheap, but if you want expensive fixtures, you pay for it. So you can find many houses now in IE and Lancaster, palmdale that are 2000-3000 sf 5 year old, that sell for $200,000-300,000. That is 100 per sf. Many even for less than that.

[KingHorse]

Yeah, sorry, I just don't feel anything for a builder's association crying about business being down 80% (a suspiciously high figure, btw). They're like the Dutch tulip brokers of 1638, screaming about losing their livelihood.

http://en.wikipedia.org/wiki/Tulip_mania

[Irvine renter III]

RM - prices around $100 sf are realistic. I say this because it wsan't too long ago that prices in decent areas such as Irvine were in this ballpark. Remember 1998 before the bubble but when builders were still making a nice living?
Bear in mind that many of us in the construction industry consider ourselves lucky if we earn roughly what we did last century I don't believe that building costs should be that much higher.
As Richard III said - now is the summer of our discontent.

[E]

Bail out the builders for building too much.

Bail out the homedebtors for borrowing too much.

Bail out the Banks for lending too much.

Tax the renters.

yeah...sounds fair. LOL

And people in the industry wonder why we don't care if their children go hungry.

[Riverside McMansion Owner]

Laker,
RM was correct in his analysis of new-construction costs. I'm near completion on an 8-unit apartment project in the IE (Owner/Builder). Being the "GC" and doing the framing with my own crew joined with multiple bids on the remaining trades I would be ecstatic to go below $110/ft. This, of course, does not include cost of land or the $200,000+ I had to cough up for "fees".
Large builders have the cushion to sell below cost in order to reduce inventory. Individual owned and REO's can sell below replacement cost for a myriad of reasons. However, you won't get a drywall installer to work for 70% of his cost or get Robertson's to sell you a $90/yard batch of concrete for $65.
BTW- Don't plan on sleeping over at your buddy's house in the spring b/c paper mache doesn't hold up well in the rain ;-)

[dan]

"His cost to build is about $50 per sf. That is including everything and land!"

Laker what is the location? is the land very cheap there?

[pete]

Call me silly but can someone please explain something to me? How in the frick did a new 1800 sqft home with hollow wood doors and a composition roof in the desert get to be $500,000? In other words, the labor and material costs weren't in a bubble. I'm sure the mexican drywaller wasn't making any extra per hour. I understand existing homes and their escalation because homeowners naturally will take the highest price. But homebuilders are doing a job that usually correlates to a typical rate of return.
Maybe someone was taking advantage? Can you say gouging??? F$#@ the builders.

[Long time listener . . .]

Most places in the country, building a house at $200/sf gives you a top of the line place. But given the bubble in Southern California and the huge demand to remodel every shack on the street, contractors were able to charge whatever they wanted. That has come to an end. Several contractors I know are scrounging for work and have already laid off most of their labor. At some point land cost + construction cost has to be fairly equal to what it costs for an existing home. That's just economics - replacement value. In fact, in many parts of the country, its cheaper to build your own house. So while the land cost out here may be what is pushing construction costs to these extreme highs, eventually they will come back to earth. Otherwise no one would bother building a new home.

And lets be honest, pre-2000, builders (both large and small) were making a great living building custom homes for less than $200/sf. I haven't seen incomes go up, so now that there is no easy money out there from lenders, affordability dictates a return to those prices.

[jaded]

I remember that the builders, having been burned in the previous downturn with too much inventory, deliberately built fewer houses than there was demand for. Thus, they artificially kept supply low during the bubble, and in their own way, helped force prices up beyond what was practical or sustainable.

I agree -- *&#$ the builders.

[Laker]

Riverside McMansion Owner,
Have you heard about china???
If you are building a house and buying your materials from Home depot...good luck.
All building supplies/equipment/fixtures is coming from china for 30 cents on the dollar compared to home depot. And that cost has delivery/shipping included!

Dan, building in the Castaic Lake area.

I have another anecdote. One member of my family is remodeling his house right now. He installed brand new paver stones and replace the old cracked concrete. He planned doing this for the last 5 years. Back in 2006, he got a quotes for about $40,000 to do this job. Two months ago, he asked checked again, got 3 quotes in the $18,000 range and finally did the job with a good contractor that did all the thing for $13,000.
So what's happening to building costs these days.....

[RM]

Laker, what your pal is doing, if true, is pretty incredible and he should be sharing his skills with others. Over the past 21 years I've built 3 homes as owner builder and even did some of the work to save money. The first house I built in 1987 cost me about $50 per sf. The second house I built in 2000 cost me about $75 per sf. The last one in 2003 cost me $90 per sf. None of this costs included land, plans, permits or loan costs. Few contractors, if any, in my area will take on a project for less $100 per sf even on the most basic home. The larger the home, the lower per sf cost as some of the expenses are fixed while some will vary with size.

As for China being of some help, not quite so. When I built my last house steel (rebar) and other materials had shot up because of the demand that China is putting on materials with their expansion. At best they may be a wash.

Presently, as it always happens in down cycles, it is possible to get homes for less than replacement costs. This is when smart investors swoop in and buy for investments. I'm seeing some deals that make me wish I had some money to invest with. I know a few investors who have bought over 8 to 10 houses in the last six months for long term rentals. In a way it's kind of sad because these people probably don't need to be any wealthier, but that's the way the world turns.