Almost-New Homes Hurt Sales of Brand-New Ones

Home builders figured they’d face cooling demand this year. But they’re also facing another challenge: competing against some of their most recent customers.

Speculators, whose robust purchases made 2005 one of the best years for new-home sales, have reined in their buying and started selling amid signs of a housing slowdown. The influx of their almost-new homes is making it harder for builders to sell brand-new ones.

The latest evidence of that came late Monday when Irvine-based Standard Pacific Corp. said new-home orders dropped 13.4% in the first two months of the year and blamed it in part on slowing investor demand. Its announcement matched recent comments from other builders.

“This slowing of sales activity is particularly evident in markets which have experienced significant price increases and investor-driven demand in recent years, such as California and Florida,” Standard Pacific said.

Until recently, builders could sell new homes as fast as they could develop them, opening up an increasing number of new-home communities at increasingly higher prices. The result pleased Wall Street and fattened the companies’ bottom lines.

Now, supply is outpacing demand in many regions, giving potential buyers more choices, including recently built houses that in many cases have never been occupied. Even though builders have tried to limit investor purchases by prohibiting buyers from selling homes within a certain time, “clearly they slipped through,” said John Burns, an Irvine-based building industry consultant.

Orange County resident John Cullum is one such investor. He’s trying to sell a new home he bought last year.

Cullum recently listed a four-room house in the Riverside County community of Menifee that was completed in October by privately held builder Van Daele Homes. It has never been lived in and is listed at $460,000, a price that he believes is competitive with yet-to-be-built models nearby that are being peddled by other building companies.

“There’s so much new construction in this area,” said Cullum, who said he received more than 100 inquiries in recent weeks.

But his house is still not in escrow, and Cullum acknowledged that demand seemed slow.

The influx of such homes on the market comes amid more evidence of slowing sales for new and existing homes. On Tuesday, the National Assn. of Realtors reported that sales of existing homes nationwide fell 2.8% in January to a 6.56-million-unit annual rate. At that pace, it would now take more than five months to sell the inventory of unsold homes, the highest backlog since August 1998.

Sales of new homes faltered in January as well, declining 5% from the month before, according to a Commerce Department report Monday. Slowing sales helped boost the supply of unsold new homes 8% to 5.2 months’ worth from December.

The slackening demand is putting the home building sector at a crossroads, Burns said.

“The industry is struggling with the issue of continuing to open new communities at the rate they have been, or slow down construction,” he said.

The shifting housing market is giving Wall Street jitters. As a group, major builders’ stocks have declined about 18% since July, as measured by a Bloomberg News index of 20 issues in the sector.

“We expect the increased inventory to limit pricing power and to impact margins,” Daniel Oppenheim, an analyst with Banc of America Securities, wrote in a note to clients.

Some analysts say that, despite worries about a slowdown, the stocks haven’t fallen more sharply because they are cheap relative to expected earnings.

Standard Pacific’s stock fell $1.06 to $32.85 on Tuesday, continuing a decline that has pulled it down nearly $10, or 23%, since Jan. 10. The stock is down 33% from its all-time high of $49.25 reached in July.